<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------ ------
Commission File No. 1-9223
SERVICE MERCHANDISE COMPANY, INC.
(Exact name of registrant as specified in its charter)
TENNESSEE 62-0816060
(State or other Jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
P. O. Box 24600, Nashville, TN
37202-4600
(Mailing Address)
7100 Service Merchandise Drive, Brentwood, TN
(Address of principal executive offices)
37027
(Zip code)
(615) 660-6000
(Registrant's telephone number including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of the latest practicable date.
As of October 27, 1996, there were 99,749,912 shares of
Service Merchandise Company, Inc. common stock outstanding.
<PAGE>
<TABLE>
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
<CAPTION>
Page No.
<S> <C>
PART I - FINANCIAL INFORMATION
Consolidated Statements of Operations (Unaudited) - Three and Nine
Periods Ended September 29, 1996 and October 1, 1995 . . . . . . . . . . 3
Consolidated Balance Sheets - September 29, 1996 (Unaudited), October
1, 1995 (Unaudited) and December 31, 1995 . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows (Unaudited) - Nine Periods
Ended September 29, 1996 and October 1, 1995 .. . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements (Unaudited) . . . . . . . . . 6-7
Management's Discussion and Analysis of Financial Condition and
Results of Operations (Unaudited). . . . . . . . . . . . . . . . . . . . 8-11
PART II - OTHER INFORMATION
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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<PAGE>
<TABLE>
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
(In thousands, except per share data)
<CAPTION>
Three Periods Ended Nine Periods Ended
------------------------------ -------------------------------
September 29, October 1, September 29, October 1,
------------- ------------- ------------- -------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $738,328 $730,031 $2,313,940 $2,332,035
Costs and expenses:
Cost of merchandise sold and buying and occupancy expenses 563,210 553,868 1,770,213 1,772,284
------------- ------------- ------------- -------------
Gross margin after cost of merchandise sold and buying and
occupancy expenses 175,118 176,163 543,727 559,751
Selling, general and administrative expenses 161,792 154,062 508,621 505,519
Depreciation and amortization 14,241 14,763 44,882 46,646
------------- ------------- ------------- -------------
Earnings (loss) before interest and income taxes (915) 7,338 (9,776) 7,586
Interest expense-debt 16,834 19,011 46,349 50,793
Interest expense-capitalized leases 2,128 2,327 6,554 7,121
------------- ------------- ------------- -------------
Loss before income tax benefit (19,877) (14,000) (62,679) (50,328)
Income tax benefit (7,553) (5,460) (23,818) (19,628)
------------- ------------- ------------- -------------
Net loss ($12,324) ($8,540) ($38,861) ($30,700)
============= ============= ============= =============
Weighted average common shares and common
share equivalents outstanding 101,337 101,857 101,364 101,395
============= ============= ============= =============
Per common share:
Net loss per common share ($0.12) ($0.08) ($0.38) ($0.30)
============= ============= ============= =============
See Notes to Consolidated Financial Statements.
</TABLE>
3
<PAGE>
<TABLE>
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except share data)
<CAPTION>
(Unaudited)
--------------------------
September 29, October 1, December 31,
1996 1995 1995 (1)
------------ ------------ ------------
ASSETS
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents $21,390 $18,901 $177,314
Accounts receivable, net of allowance of
$2,966, $3,022 and $2,763, respectively 39,512 36,456 53,621
Refundable income taxes 13,513 12,193 -
Inventories 1,328,761 1,328,436 1,034,467
Prepaid expenses 60,963 65,050 25,277
------------ ------------ ------------
TOTAL CURRENT ASSETS 1,464,139 1,461,036 1,290,679
Property and Equipment:
Owned assets, net of accumulated depreciation of
$515,340, $492,527 and $505,429, respectively 556,546 574,319 583,290
Capitalized leases, net of accumulated amortization of
$87,197, $79,624 and $81,579, respectively 39,395 46,391 44,823
Other assets and deferred charges 22,384 22,894 21,778
------------ ------------ ------------
TOTAL ASSETS $2,082,464 $2,104,640 $1,940,570
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable to banks $348,400 $445,700 -
Accounts payable 544,364 517,448 $620,669
Accrued expenses 166,021 169,076 193,016
State and local sales taxes 31,918 28,734 61,224
Income taxes - - 29,209
Current maturities of long-term debt 4,698 1,830 1,936
Current maturities of capitalized lease obligations 7,479 7,413 7,885
Deferred income taxes 10,841 3,578 11,715
------------ ------------ ------------
TOTAL CURRENT LIABILITIES 1,113,721 1,173,779 925,654
Long-term debt 555,625 554,577 557,392
Capitalized lease obligations 60,604 68,400 65,894
Deferred income taxes 3,886 2,415 4,888
------------ ------------ ------------
TOTAL LIABILITIES 1,733,836 1,799,171 1,553,828
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $1 par value, authorized 4,600,000 shares,
undesignated as to rate and other rights, none issued
Series A Junior Preferred Stock, $1 par value, authorized
400,000 shares, none issued
Common stock, $.50 par value, authorized 500,000,000 shares,
issued and outstanding 99,748,000, 99,670,000 and 99,686,000
shares, respectively 49,874 49,835 49,843
Additional paid-in capital 5,633 5,466 5,483
Deferred compensation (1,484) (2,273) (2,050)
Retained earnings 294,605 252,441 333,466
------------ ------------ ------------
TOTAL SHAREHOLDERS' EQUITY 348,628 305,469 386,742
------------ ------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $2,082,464 $2,104,640 $1,940,570
============ ============ ============
(1) Derived from fiscal year ended December 31, 1995 audited financial statements.
</TABLE>
See Notes to Consolidated Financial Statements.
-4-
<PAGE>
<TABLE>
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
<CAPTION>
Nine Periods Ended
-----------------------------------
September 29, October 1,
-------------- --------------
1996 1995
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($38,861) ($30,700)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 47,099 48,748
Deferred income taxes (1,876) 1,366
(Gain) loss on disposal of property and equipment (4,650) 198
Changes in assets and liabilities (net of disposition):
Accounts receivable, net 14,109 18,678
Inventories (294,294) (324,154)
Prepaid expenses (35,686) (37,272)
Accounts payable (76,305) (122,318)
Accrued expenses and state and local sales taxes (56,301) (68,114)
Income taxes (42,722) (51,557)
-------------- --------------
NET CASH USED BY OPERATING ACTIVITIES (489,487) (565,125)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment - owned (17,232) (23,597)
Proceeds from the disposal of property and equipment 9,831 1,492
Other assets, net (1,008) (4,315)
-------------- -------------
NET CASH USED BY INVESTING ACTIVITIES (8,409) (26,420)
-------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from short-term borrowings 348,400 445,700
Proceeds from long-term debt 2,600 3,600
Repayment of long-term debt (1,643) (5,137)
Repayment of capitalized lease obligations (6,353) (5,873)
Debt issuance costs (1,084) (199)
Exercise of stock options and forfeiture of restricted stock, net 52 (909)
-------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 341,972 437,182
-------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (155,924) (154,363)
CASH AND CASH EQUIVALENTS-BEGINNING OF PERIOD 177,314 173,264
-------------- -------------
CASH AND CASH EQUIVALENTS-END OF PERIOD $21,390 $18,901
============== =============
See Notes to Consolidated Financial Statements.
</TABLE>
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<PAGE>
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. The consolidated financial statements, except for the consolidated balance
sheet as of December 31, 1995, have been prepared by the Company without
audit.
In management's opinion, the information and amounts furnished in this
report reflect all adjustments (consisting of normal recurring adjustments)
considered necessary for the fair presentation of the financial position
and results of operations for the interim periods presented. Certain prior
period amounts have been reclassified to conform to the current year's
presentation. These financial statements should be read in conjunction
with the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995.
The Company has historically incurred a net loss for the first three
quarters of the year due to the seasonality of its business. The results
of operations for the third quarter ended September 29, 1996 and October 1,
1995 are not necessarily indicative of the operating results for the entire
fiscal year.
B. The third quarter ended September 29, 1996 and October 1, 1995 each
contained 91 selling days. Year to date ended September 29, 1996 and
October 1, 1995 each contained 272 selling days.
C. The net loss per common share is computed by dividing the net loss by the
weighted average number of common shares and common share equivalents
outstanding.
D. Cash payments for interest for the nine periods ended September 29, 1996
and October 1, 1995 were $43.9 million and $50.0 million, respectively.
Cash payments for income taxes for the nine periods ended September 29,
1996 and October 1, 1995 were $17.2 million and $30.3 million,
respectively. The Company considers all highly liquid investments
purchased as part of its daily cash management activities to be cash
equivalents. Such investments are generally made for periods covering 1 to
30 days.
E. The Company has available a Reducing Revolving Credit Facility ("Credit
Facility"). The maximum commitment level for the Credit Facility reduces
$25 million annually until reaching $475 million at December 31, 1998.
Currently, the maximum commitment level is $550 million. The Credit
Facility matures on June 8, 1999 and currently has an interest rate of
LIBOR + 5/8% on the borrowed amount and a 3/8% facility fee on the entire
committed amount. Short-term borrowings related to the Credit Facility
were $348.4 million and $445.7 million as of September 29, 1996 and October
1, 1995, respectively.
On September 16, 1996, the Company amended the existing Credit Facility to
permit the incurrence of debt and the lien on assets at the subsidiary
level for a real estate mortgage financing approved in an earlier
amendment. Subsequent to quarter end, the Company completed the first of
two pools in a real estate mortgage financing. On October 4, 1996, the
Company closed $58 million of a $75 million commitment from its lender,
with the remainder expected to be funded in the fourth quarter of 1996.
The proceeds are ultimately expected to be used for capital investments in
the Company's business. The first mortgage pool is being financed over a
fifteen year term with an interest rate of 9.27%.
-6-
<PAGE>
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) (continued)
F. Effective January 1, 1996, the Company adopted the provisions of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of," and determined that no
material impairment exists which would require recognition under the
provisions of this standard.
G. In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires adoption of the disclosure provisions no
later than fiscal years beginning after December 15, 1995 and adoption of
the recognition and measurement provisions for nonemployee transactions
entered into after December 15, 1995. Pursuant to the new standard,
companies are encouraged, but are not required, to adopt the fair value
method of accounting for employee stock-based transactions. The Company
will adopt only the disclosure provisions relative to SFAS No. 123 and
continue to account for stock transactions under Accounting Principles
Board Opinion No. 25.
-7-
<PAGE>
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (UNAUDITED)
For comparative purposes, interim balance sheets are more meaningful when
compared to the balance sheets at the same point in time of the prior year.
Comparisons to balance sheets of the most recent fiscal year end may not be
meaningful due to the seasonal nature of the Company's business.
RESULTS OF OPERATIONS
The nature of the Company's business is highly seasonal. Historically, sales in
the fourth quarter have been substantially higher than sales achieved in each of
the first three quarters of the fiscal year. Thus expenses and, to a greater
extent, operating income vary greatly by quarter. Caution, therefore, is
advised when appraising results for a period shorter than a full year, or when
comparing any period other than to the same period of the previous year.
THIRD QUARTER ENDED SEPTEMBER 29, 1996 VS. THIRD QUARTER ENDED
OCTOBER 1, 1995
NET SALES
Net sales for the third quarter of 1996 were $738.3 million compared to $730.0
million for the comparable quarter of 1995, representing an increase of $8.3
million or 1.1%. Comparable store sales increased 0.8% in the quarter as
compared to the same quarter a year ago. Hardlines experienced higher sales for
the quarter while jewelry sales were down, partially reflecting the movement of
a gold and diamond promotion to early fourth quarter this year and softer sales
earlier in the quarter. At the end of the third quarter, Service Merchandise
was operating 408 stores, a net increase of 2 stores from a year ago.
GROSS MARGIN
Gross margin, after buying and occupancy expenses, for the third quarter of 1996
was $175.1 million, or 23.7% of net sales, compared to $176.2 million, or 24.1%
of net sales, a year ago. The slightly lower gross margin rates reflect a
decline in jewelry sales, which carry a higher margin, and the increased
hardlines sales levels. In addition, freight costs were higher for the quarter
due to higher hardlines sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the third quarter were $161.8
million, or 21.9% of net sales, versus $154.1 million, or 21.1% of net sales, in
the third quarter of 1995. The increase is primarily attributable to additional
employment expenses associated with changes in merchandising and display
fixtures in many of the stores.
-8-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Unaudited) (continued)
INTEREST EXPENSE
Interest expense decreased to $19.0 million in the quarter as compared to $21.3
million a year ago. The decrease primarily reflects $118.9 million in lower
average short-term borrowings outstanding for the quarter as compared to the
same period a year ago.
TAXES ON INCOME
The Company recognized an income tax benefit of $7.6 million and $5.5 million
for the third quarter ended September 29, 1996 and October 1, 1995,
respectively. The effective tax rates for the quarter ended September 29, 1996
and October 1, 1995 were 38% and 39%, respectively. For the fiscal year ended
December 31, 1995 the effective income tax rate was 38%.
NINE PERIODS ENDED SEPTEMBER 29, 1996 VS. NINE PERIODS ENDED OCTOBER 1, 1995
NET SALES
Net sales for the first nine periods of 1996 were $2,313.9 million as compared
to $2,332.0 million for the first nine periods of 1995, a decrease of 0.8% due
primarily to weak sales in the first quarter of 1996. Comparable store sales
have decreased 0.9% for the first nine periods compared to a year ago.
GROSS MARGIN
Gross margin, after taking into account buying and occupancy expenses, for the
nine periods ended September 29, 1996 was $543.7 million, or 23.5% of net sales,
as compared to $559.8 million, or 24.0% of net sales, for the same period a year
ago. The decline in gross margin rate resulted primarily from increased
transportation costs and to a lesser extent occupancy costs. Merchandise margin
rates remained relatively flat for the first nine periods of 1996.
-9-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Unaudited) (continued)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased to $508.6 million, or
22.0% of net sales, for the nine periods ended September 29, 1996 as compared to
$505.5 million, or 21.7% of net sales, for the same sales period a year ago.
The increase in selling, general and administrative expenses is primarily
attributable to additional employment expenses associated with the changes in
merchandising and display fixtures in many of the stores partially offset by a
reduction in advertising costs.
INTEREST EXPENSE
Interest expense for the first nine periods of 1996 was $52.9 million as
compared to $57.9 million for the same period a year ago. The decrease
primarily reflects $75.2 million in lower average short-term borrowings
outstanding for the first nine periods of 1996 as compared to the same period in
1995.
TAXES ON INCOME
The Company recognized an income tax benefit of $23.8 million for the nine
periods ended September 29, 1996 compared to an income tax benefit of $19.6
million for the same period a year ago. The estimated annual effective tax
rates for the nine periods ended September 29, 1996 and October 1, 1995 were 38%
and 39%, respectively. For the fiscal year ended December 31, 1995 the
effective income tax rate was 38%.
LIQUIDITY AND CAPITAL RESOURCES
Net working capital (current assets less current liabilities) totaled $350.4
million at the end of the third quarter of 1996, representing an increase of
22.0% from the October 1, 1995 level of $287.3 million. The net working capital
increase was primarily due to a reduction of $97.3 million of short-term
borrowings which totaled $348.4 million ($179.1 million available for borrowing)
at September 29, 1996 compared to $445.7 million ($116.2 million available for
borrowing) at October 1, 1995. This was offset by a $26.9 million increase in
accounts payable. The current ratio at September 29, 1996 was 1.3:1 compared to
the current ratio at October 1, 1995 of 1.2:1. The reduction in short-term
borrowings is primarily the result of additional operating cash flow and reduced
capital expenditures over the past year.
Working capital requirements fluctuate significantly during the year due to the
seasonal nature of the jewelry, gift and home business. These requirements are
financed through a combination of internally generated cash flow from operating
activities and short-term borrowings.
-10-
<PAGE>
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Unaudited) (continued)
The Company has available a Reducing Revolving Credit Facility ("Credit
Facility"). The maximum commitment level for the facility reduces $25 million
annually until reaching $475 million at December 31, 1998. Currently, the
maximum commitment level is $550 million. The Credit Facility matures on June
8, 1999 and currently has an interest rate of LIBOR + 5/8% on the borrowed
amount and a 3/8% facility fee on the entire committed amount. On September 16,
1996, the Company amended the existing Credit Facility to permit the incurrence
of debt and the lien on assets at the subsidiary level for a real estate
mortgage financing approved in an earlier amendment.
Total long-term debt, including current maturities and capitalized leases,
decreased to $628.4 million at September 29, 1996 from $632.2 million at October
1, 1995. The decrease in total long-term debt was primarily the result of
scheduled payments for capitalized lease obligations partially offset by two new
mortgages obtained by the Company. Subsequent to quarter end, the Company
completed the first of two pools in a real estate mortgage financing. On October
4, 1996, the Company closed $58 million of a $75 million commitment from its
lender, with the remainder expected to be funded in the fourth quarter of 1996.
The proceeds are ultimately expected to be used for capital investments in the
Company's business. The first mortgage pool is being financed over a fifteen
year term with an interest rate of 9.27%.
Effective January 1, 1996, the Company adopted the provisions of Financial
Accounting Standard No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of," and determined that no material
impairment exists which would require recognition under the provisions of this
standard.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation," which requires adoption of the disclosure provisions no later
than fiscal years beginning after December 15, 1995 and adoption of the
recognition and measurement provisions for nonemployee transactions entered into
after December 15, 1995. Pursuant to the new standard, companies are
encouraged, but are not required, to adopt the fair value method of accounting
for employee stock-based transactions. The Company will adopt only the
disclosure provisions relative to SFAS No. 123 and continue to account for stock
transactions under Accounting Principles Board Opinion No. 25.
Additions to owned property and equipment were $17.2 million for the nine
periods ended September 29, 1996 compared to $23.6 million for the same period
last year. The Company operated 408 jewelry, gift and home stores as of
September 29, 1996, a net increase of 2 stores from a year ago. Net store
growth is anticipated to remain relatively flat for fiscal 1996. The Company
expects to incur capital expenditures of approximately $50 million during fiscal
1996 related primarily to store growth and improvements to existing stores. The
Company plans to fund these expenditures through a combination of cash flow from
operations, borrowings under the Reducing Revolving Credit Facility and proceeds
from the real estate mortgage financing.
-11-
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in the Rights of the Company's Security Holders
On September 16, 1996, the Company amended the existing Credit Facility
to permit the incurrence of debt and the lien on assets at the
subsidiary level for a real estate mortgage financing approved in an
earlier amendment.
Item 3. Defaults by the Company on Its Senior Securities
Not applicable.
Item 4. Results of Votes of Security Holders
Not applicable.
Item 5. Other Information
Not applicable.
-12-
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
6(a) Exhibits filed with this Form 10-Q
Exhibit No. Under Items
601 of Regulation S-K Brief Description
--------------------- -----------------
4.1 Amendment No. 3 to Credit
Agreement effective September 16, 1996
among Service Merchandise Company, Inc.,
Various Banks and The Chase Manhattan Bank (as
successor to Chemical Bank) as
Administrative Agent.
4.2 Conditional Loan Commitment dated as of
September 9, 1996 concerning the $75 million
Real Estate Mortgage Financing among Service
Merchandise Company, Inc. and First Union
National Bank of North Carolina.
4.2a Loan Agreement dated as of October 4, 1996
concerning the $75 million Real Estate
Mortgage Financing among SMC-SPE-1, Inc., and
First Union National Bank of North Carolina.
4.2b Loan Agreement dated as of October 4, 1996
concerning the $75 million Real Estate
Mortgage Financing among SMC-SPE-2, Inc., and
First Union National Bank of North Carolina.
11 Statement re:
Computation of Net Loss Per Common Share for
the Three Periods Ended and Nine Periods Ended
September 29, 1996 and October 1, 1995.
27 Financial Data Schedule for the Nine Periods
Ended September 29, 1996.
6(b) Reports on Form 8-K
There were no reports on Form 8-K during the three
periods ended September 29, 1996.
-13-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SERVICE MERCHANDISE
COMPANY, INC.
Date: November 8, 1996 /s/ Raymond Zimmerman
-----------------------------
Raymond Zimmerman
Chairman of the Board
(Chief Executive Officer)
Date: November 8, 1996 /s/ Gary Witkin
-----------------------------
Gary Witkin
President
(Chief Operating Officer)
Date: November 8, 1996 /s/ S. Cusano
-----------------------------
S. Cusano
Vice President and Chief Financial Officer
(Chief Financial Officer)
(Chief Accounting Officer)
-14-
THIRD AMENDMENT
---------------
THIRD AMENDMENT (this "Amendment"), dated as of September 16, 1996, among
SERVICE MERCHANDISE COMPANY, INC. (the "Borrower"), the various lending
institutions party to the Credit Agreement referred to below (the "Banks"), and
THE CHASE MANHATTAN BANK (as successor to CHEMICAL BANK), as Administrative
Agent (in such capacity, the "Administrative Agent"). All capitalized terms used
herein and not otherwise defined shall have the respective meanings provided
such terms in the Credit Agreement referred to below.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Borrower, the Banks and the Administrative Agent are parties
to a Credit Agreement, dated as of June 8, 1994 and amended by the First
Amendment thereto dated as of April 13, 1995 and the Second Amendment thereto
dated May 23, 1996 (as so amended, the "Credit Agreement"); and
WHEREAS, the parties hereto wish to amend the Credit Agreement as herein
provided;
NOW, THEREFORE, it is agreed that as of the Third Amendment Effective Date
(as defined below):
1. Section 9.11(vi) of the Credit Agreement is hereby amended by adding the
following language to the end thereof (prior to the word "and"):
"and restrictions imposed by the terms of the First Union Permitted
Mortgage Financing on the First Union Permitted Mortgage Financing
Subsidiaries."
2. Section 9.15 of the Credit Agreement is hereby amended by inserting the
following proviso to the end of clause (b) thereof:
"; provided that the First Union Permitted Mortgage Financing Subsidiaries
shall not enter into the Guaranty."
3. Section 11.01 of the Credit Agreement is hereby amended by inserting in
the appropriate alphabetical order the following new definitions:
"First Union Permitted Mortgage Financing" shall mean the Permitted
Mortgage Financing provided by First Union National Bank of North Carolina
substantially in accordance with its commitment letter to the Borrower dated
September 9, 1996.
"First Union Permitted Mortgage Financing Subsidiaries" shall mean any
direct or indirect wholly-owned Subsidiary of the Borrower which is
wholly-owned, directly or indirectly by a Guarantor and which is created to be a
borrower under the First Union Permitted Mortgage Financing.
<PAGE>
"Third Amendment Effective Date" shall mean the effective date of the Third
Amendment to this Agreement.
4. The definition of "Permitted Investments" in Section 11.01 of the Credit
Agreement is hereby amended by (x) inserting the words "and may transfer assets"
after the words "unsecured loans and advances" in clause (iv) thereof and (y) by
(a) deleting the word "and" at the end of clause (iv), (b) deleting the period
at the end of clause (v) and inserting in lieu thereof "; and" and (c) inserting
immediately thereafter the following new clause:
"(vi) the Borrower and/or its Subsidiaries may, all in connection with the
First Union Permitted Mortgage Financing and in a manner satisfactory to the
Administrative Agent, (x) transfer Real Property and related assets to the First
Union Permitted Mortgage Financing Subsidiaries and (y) provide security or
escrow deposits or Letters of Credit in lieu of security or escrow deposits,
guaranties, indemnities and similar items required by the terms of the First
Union Permitted Mortgage Financing, provided, that on the date of each closing
thereof, the aggregate proceeds of such financing net of the aforementioned
items are not less than 60% of the aggregate fair market value of the Real
Property and related assets being encumbered in connection therewith."
5. The definition of "Permitted Mortgage Financing" in Section 11.01 of the
Credit Agreement is hereby amended by (x) adding the words "and/or its
Subsidiaries" both after the words "incurred by the Borrower" and after the
words "owned or leased by the Borrower" appearing therein, and (y) deleting the
words "fair market value of the respective asset being sold", and substituting
in lieu thereof the words "aggregate fair market value of the assets being
encumbered."
6. Section 13.07(a) of the Credit Agreement is hereby amended by adding the
following language at the end thereof:
" To the extent that the Borrower or a Subsidiary thereof provides a
guaranty of the obligations of the Borrower or its Subsidiaries as tenants under
the Real Property operating leases contemplated by the First Union Permitted
Mortgage Financing, any Contingent Obligations represented by such guaranty
shall not be taken into account for purposes of calculations under this
Agreement involving the Indebtedness of the Borrower and its Subsidiaries."
7. In order to induce the undersigned Banks to enter into this Amendment,
the Borrower hereby represents and warrants that (x) no Default or Event of
Default exists on the Third Amendment Effective Date both before and after
giving effect to this Amendment and (y) all of the representations and
warranties contained in the Credit Agreement shall be true and correct in all
material respects as of the Third Amendment Effective Date both before and after
giving effect to this Amendment, with the same effect as though such
representations and warranties had been made on and as of the Third Amendment
Effective Date (it being understood that any representation or warranty made as
of a specified date shall be required to be true and correct in all material
respects only as of such specific date).
<PAGE>
8. This Amendment is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
9. This Amendment may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which counterparts
when executed and delivered shall be an original, but all of which shall
together constitute one and the same instrument. A complete set of counterparts
shall be lodged with the Borrower and the Administrative Agent.
10. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE
OF NEW YORK.
11. This Amendment shall become effective on the date (the "Third Amendment
Effective Date") when the Borrower and the Required Banks (i) shall have signed
a counterpart hereof (whether the same or different counterparts) and (ii) shall
have delivered (including by way of telecopier) the same to the Administrative
Agent at the Notice Office.
12. From and after the Third Amendment Effective Date all references in the
Credit Agreement and the other Credit Documents to the Credit Agreement shall be
deemed to be references to the Credit Agreement as modified hereby.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment to be duly executed and delivered as of the date first above
written.
Address:
7100 Service Merchandise Drive SERVICE MERCHANDISE COMPANY, INC.
Brentwood, Tennessee 37027
Attention: Thomas L. Garrett, Jr.
Telephone: 615-660-6000
Telecopy: 615-660-3667 By: /s/ Thomas L. Garrett, Jr.
-----------------------------------
270 Park Avenue, 9th Floor THE CHASE MANHATTAN BANK
New York, New York 10017 Individually, and as Administrative Agent
Attention: Christopher C. Wardell
Telephone: 212-270-2053 By: /s/ Christopher C. Wardell
Telecopy: 212-270-6125 -----------------------------------
Title: Managing Director
-----------------------------------
WITH A COPY TO:
Chase Securities, Inc.
10 South LaSalle Street
Suite 2300
Chicago, Illinois 60603
Attention: Paul Doran
Telephone: 313-807-4089
Telecopy: 312-346-9310
One Ravinia Drive ABN AMRO BANK N.V., ATLANTA
Suite 1200 AGENCY
Atlanta, Georgia 30346-2103
Attention: Linda Davis
Telephone: 404-399-7378 By: /s/ Larry Kelley
Telecopy: 404-395-9188 -----------------------------------
Title: Group Vice President
-----------------------------------
By: /s/ Steven L. Hipsman
-----------------------------------
Title: Vice President
-----------------------------------
<PAGE>
245 Park Avenue ARAB BANKING CORPORATION
New York, New York 10167
Attention: Louise Bilbro
Telephone: 212-850-0665 By: /s/ Louise Bilbro
Telecopy: 212-599-8385 -----------------------------------
Title: Vice President
-----------------------------------
100 Federal Street THE FIRST NATIONAL BANK OF BOSTON
Boston, Massachusetts 02110
Attention: Peter Griswold
Telephone: 617-434-8312 By: /s/
Telecopy: 617-434-6685 -----------------------------------
Title: Managing Director
-----------------------------------
430 Park Avenue THE BANK OF MONTREAL
New York, New York 10022
Attention: Tom Calder
Telephone: 212-605-1460 By: /s/ W. Tom Calder
Telecopy: 212-605-1455 -----------------------------------
Title: Director
-----------------------------------
One Wall Street, 22nd Floor THE BANK OF NEW YORK
New York, New York 10286
Attention: Paula Diponzio
Telephone: 212-635-7867 By: /s/ Paula Diponzio
Telecopy: 212-635-1483 -----------------------------------
Title: Vice President
-----------------------------------
Structured Finance Department THE BANK OF TOKYO-MITSUBISHI, LTD.
1251 Avenue of the Americas
New York, New York 10022
Attention: Paul P. Malecki By: /s/ Paul P. Malecki
-----------------------------------
Title: Vice President
-----------------------------------
Structured Finance Department THE BANK OF TOKYO-MITSUBISHI, TRUST
1251 Avenue of the Americas COMPANY
New York, New York 10022
Attention: Paul P. Malecki
By: /s/ Paul P. Malecki
-----------------------------------
Title: Vice President
-----------------------------------
<PAGE>
787 Seventh Avenue BANQUE PARIBAS
New York, New York 10019
Attention: Ann Pifer
Telephone: 212-841-2383 By: /s/ Ann C. Pifer
Telecopy: 212-841-2333 -----------------------------------
Title: Vice President
-----------------------------------
By: /s/ Mary T. Finnegan
-----------------------------------
Title: Vice President
-----------------------------------
Two Paces West CANADIAN IMPERIAL BANK OF
2727 Paces Ferry Road COMMERCE
Atlanta, Georgia 30339
Attention: Kathryn W. Sax
Telephone: 770-319-4903 By: /s/ Kathryn W. Sax
Telecopy: 770-319-4954 -----------------------------------
Title: Authorized Signatory
-----------------------------------
75 Wall Street DRESDNER BANK AG, NEW YORK
New York, New York 10005 BRANCH
Attention: Richard Conroy
Telephone: 212-429-2206 By: /s/ Richard Conroy
Telecopy: 212-574-0129 -----------------------------------
Title: Vice President
-----------------------------------
By: /s/
-----------------------------------
Title: Vice President
-----------------------------------
Marquis One Tower, Suite 2100 THE FUJI BANK, LTD.
245 Peachtree Center Avenue NE
Atlanta, Georgia 30303-1208
Attention: Brett Johnson
Telephone: 404-653-2100 By: /s/ Toshibiro Mitsui
Telecopy: 404-653-2119 -----------------------------------
Title: Vice President and Manager
-----------------------------------
Two World Trade Center, 99th Floor THE HOKKAIDO TAKUSHOKU BANK, LTD.
New York, New York 10048
Attention: Scott D. Winston
Telephone: 212-912-6914 By: /s/
Telecopy: 212-466-6079 -----------------------------------
Title: Senior Vice President and Manager
-----------------------------------
<PAGE>
245 Park Avenue THE INDUSTRIAL BANK OF JAPAN,
New York, New York 10167 LIMITED -NEW YORK BRANCH
Attention: Jim Welch
Telephone: 212-309-6577 By: /s/
Telecopy: 212-682-2870 -----------------------------------
Title: Senior Vice President and
-----------------------------------
Senior Manager
-----------------------------------
245 Peachtree Center Avenue NE LTCB TRUST COMPANY
Suite 2801
Atlanta, Georgia 30303
Attention: Becky Sedler
Telephone: 404-659-7210 By: /s/ Satoru Otsubo
Telecopy: 404-658-9751 -----------------------------------
Title: Executive Vice President
-----------------------------------
140 Broadway MIDLAND BANK PLC
New York, New York 10005
Attention: Karen Wold
Telephone: 212-658-2750 By: /s/ Karen Wold
Telecopy: 212-658-2586 -----------------------------------
Title: Director
-----------------------------------
500 West Jefferson Street PNC BANK, KENTUCKY, INC.
Louisville, Kentucky 40202
Attention: Ralph Phillips
Telephone: 502-581-4543 By: /s/ Ralph A. Phillips
Telecopy: 502-581-2302 -----------------------------------
Title: Vice President
-----------------------------------
520 Madison Avenue, 25th Floor THE MITSUBISHI TRUST AND
New York, New York 10022 BANKING CORPORATION
Attention: Susan LeFevre
Telephone: 212-891-8454
Telecopy: 212-755-2349 By: /s/
212-486-0970 -----------------------------------
Title: Senior Vice President
-----------------------------------
<PAGE>
One NationsBank Plaza M-5 NATIONSBANK, N.A. f/k/a
311 Union Street NATIONSBANK OF NORTH CAROLINA,
Nashville, Tennessee 37239-1697 N.A.
Attention: Kimberly Dupuy
Telephone: 615-749-3174
Telecopy: 615-749-4640 By: /s/
-----------------------------------
Title: Vice President
-----------------------------------
245 Park Avenue, 30th Floor THE NIPPON CREDIT BANK, LTD.
New York, New York 10167
Attention: Barry Fein
Telephone: 212-984-1261 By: /s/ Barry Fein
Telecopy: 212-490-3895 -----------------------------------
Title: Assistant Vice President
-----------------------------------
Marquis One Tower, Suite 2703 THE SAKURA BANK, LIMITED
245 Peachtree Center Avenue NE
Atlanta, Georgia 30303
Attention: Chad Zimmerman
Telephone: 404-521-3111 By: /s/ Hiroyasu Imanishi
Telecopy: 404-521-1133 -----------------------------------
Title: Vice President and Senior Manager
-----------------------------------
Georgia Pacific Center, Suite 3210 THE SUMITOMO BANK, LIMITED,
133 Peachtree Street NE ATLANTA AGENCY
Atlanta, Georgia 30303
Attention: Tom Lawson
Telephone: 404-526-8513 By: /s/ Masayuki Fukushima
Telecopy: 404-521-1187 -----------------------------------
Title: Joint General Manager
-----------------------------------
55 East 52nd Street THE TOKAI BANK, LTD. NEW YORK
New York, New York 10055 BRANCH
Attention: Bill Struckell
Telephone: 212-339-1123 By: /s/
Telecopy: 212-754-2170 -----------------------------------
Title: Senior Vice President
-----------------------------------
<PAGE>
One Detroit Center, 9th Floor COMERCIA BANK
500 Woodward Avenue, MC 3281
Detroit, Michigan 48226
Attention: Kristine L. Andersen
Telephone: 313-222-3648 By: /s/ John M. Costa
Telecopy: 313-222-3330 -----------------------------------
Title: Vice President
-----------------------------------
650 Fifth Avenue BANK OF IRELAND, CAYMAN ISLAND
New York, New York 10019 BRANCH
Attention: John Cusack
Telephone: 212-397-1712 By: /s/ John Cusack
Telecopy: 212-586-7752 -----------------------------------
Title: Assistant Vice President
-----------------------------------
1211 Avenue of the Americas WESTDEUTSCHE LANDESBANK
New York, New York 10036 GIROZENTRALE, NEW YORK AND
Attention: Karen E. Hoplock CAYMAN ISLAND BRANCHES
Telephone: 212-852-6000
Telecopy: 212-852-6300 By: /s/
-----------------------------------
Title: Vice President
-----------------------------------
By: /s/
-----------------------------------
Title: Associate
-----------------------------------
One Parkview Plaza VAN KAMPEN AMERICAN CAPITAL
Oakbrook Terrace, Illinois 60181 PRIME RATE INCOME TRUST
Attention: Jeffrey W. Maillet
Telephone: 630-684-6438 By: /s/ Jeffrey W. Maillet
Telecopy: 630-684-6740 -----------------------------------
Title: Senior Vice President and Director
-----------------------------------
666 Fifth Avenue, Suite 800 THE YASUDA TRUST AND BANKING
New York, New York 10103 COMPANY, LTD.
Attention: Makoto Tagawa
Telephone: 212-373-5709 By: /s/ Makoto Tagawa
Telecopy: 212-373-5796 -----------------------------------
Title: Deputy General Manager
-----------------------------------
CONDITIONAL LOAN COMMITMENT
Check One: [X] Commercial
[ ] Multi-Family
Date: September 9, 1996
Service Merchandise Company, Inc.
7100 Service Merchandise Drive
Brentwood, Tennessee 37027
Attention: Thomas L. Garrett, Jr.
Ladies and Gentlemen:
We are pleased to advise you that, based upon your application and other
materials you have furnished in connection therewith, First Union National Bank
of North Carolina ("Lender") has committed to make a loan or loans
(individually, a "Loan" and collectively, the "Loans") on the following terms
and conditions:
ARTICLE 1- GENERAL TERMS OF LOAN
---------------------------------
1.1 Borrower. There shall be one Borrower per each Loan Pool (as defined in
the Special Stipulations Rider attached hereto), which shall be a special
purpose entity satisfactory to Lender in all respects and the owner of a fee or
leasehold interest in the Properties included in such Loan Pool (each, a
"Borrower").
1.2 Loan Purpose; Properties. The financing of Service Merchandise
properties, together with parking and other appurtenant facilities (the
"Improvements") upon the lands (collectively, the "Land") and at the locations
set forth on Schedule "A" attached hereto and by this reference incorporated
herein (it being understood by the parties that Service Merchandise Company,
Inc. ("SMC") intends, but is not required, to continue to propose to Lender for
Lender's review and approval, additional properties to add to the twenty-two
(22) Properties set forth on Schedule "A", with the goal of adding enough
additional collateral to support up to $75,000,000 in Loan proceeds), and of the
personal property of the Borrower(s) used in connection with the operation,
ownership, management and maintenance of the Properties ("Personal Property")
(as opposed to trade fixtures, inventory and other personalty utilized for the
operation of the businesses conducted at the Properties) (the Land, the
Improvements, the Personal Property and all related appurtenances being herein
referred to individually as a "Property" and collectively as the "Properties").
In no event shall any proceeds of the Loans be used for personal, family or
household purposes.
1.3 Loan Amount. In the aggregate, approximately $75,000,000 of Loans. The
exact aggregate amount of each Loan in each Loan Pool (each, a "Loan Amount")
will be determined by Lender in its discretion based upon, among other things,
the conditions contained in Section 3.4 hereof.
<PAGE>
1.4 Interest Rate.
(a) A fixed interest rate (the "Interest Rate") per annum equal to two
hundred thirty- five (235) basis points in excess of the US Treasury Note Yield
(as defined below) or such other security mutually agreed upon by Lender and
Borrower, rounded up to the nearest 1/16%, which Interest Rate shall be
determined by Lender on the date of pre-Closing of a Loan Pool or the date of
Closing, as the case may be, each in accordance with Section 4.5 hereof. The
Interest Rate shall be calculated on the daily outstanding aggregate principal
balance of the Loans in a Loan Pool on the basis of a year consisting of 360
days and based on twelve (12) 30-day months for each full calendar month and on
the actual number of days elapsed for any partial month in which interest is
being calculated. The "US Treasury Note Yield" means a fixed rate of interest
equal to the yield of a United States Treasury obligation with a maturity date
as close as commercially reasonable to the maturity date of the Loans in a Loan
Pool, as published electronically at the time of determination by Lender on
either Dow Jones Telerate, Inc. or Bloomberg Financial Markets (collectively
"Financial News Wires"), or if such Financial News Wires no longer publish such
information, in another authoritative source selected by Lender.
(b) The Interest Rate shall be "locked" (i.e. taken from the Financial News
Wires) by Lender in accordance with the procedures set forth in Section 4.5 of
this Commitment; provided, however, Lender shall not be obligated to lock the
Interest Rate until Lender has received both the Commitment Fee and the Rate
Lock Fee (except as otherwise provided in Section 4.5) as required herein.
1.5 Repayment Terms. If the funding of a Loan Pool does not occur on the
first (1st) day of a calendar month, then interest accruing on each Loan in the
Loan Pool from the date of closing through the last day of that calendar month
shall be prepaid at the Closing (as hereinafter defined). Thereafter, principal
and interest shall be payable monthly, in arrears, in equal monthly installments
during the term of the applicable Loans, based upon a twenty-two (22) year
amortization schedule commencing on the first (1st) day of the second calendar
month following the Loan Closing. All outstanding principal and unpaid interest
for each Loan in the Loan Pool shall be due and payable in full on the tenth
(10th) anniversary of the Closing of the applicable Loan Pool (the "Maturity
Date"). Notwithstanding the foregoing, SMC shall have the option with respect to
all of the Loans to elect a fifteen (15) year amortization schedule with a
Maturity Date on the fifteenth (15th) anniversary of the Closing of each Loan
Pool. Such election must be made by SMC for all Loans in writing not later than
five (5) business days prior to the first Closing.
1.6 Prepayment. Prepayment of the Loans in a Loan Pool shall be prohibited
prior to the first (1st) anniversary of the Closing, subject to the last
sentence of this Section 1.6. Thereafter, Borrower will have the right to prepay
the entire aggregate principal balance of the Loans in a Loan Pool in full, but
not in part (except as otherwise provided herein), provided:
2
<PAGE>
(a) During the period from the first (1st) anniversary of the Closing until
the date that is nine (9) years and six (6) months following the Closing, Lender
is paid a prepayment fee in an amount equal to the greater of (i) one percent
(1.0%) of the amount being prepaid or (ii) Yield Maintenance (as hereinafter
defined); and
(b) From and after the date that is nine (9) years and six (6) months
following the Closing, there shall be no prepayment fee.
**OR**
If Borrower exercises its election pursuant to Section 1.5 hereof to
structure the Loans with a fifteen (15) year term based upon a fifteen (15) year
amortization schedule, then prepayment of the Loans in a Loan Pool shall be
prohibited prior to the fifth (5th) anniversary of the Closing. Thereafter,
Borrower will have the right to prepay the entire aggregate principal balance of
the Loans in a Loan Pool in full, but not in part, provided:
(a) During the period from the fifth (5th) anniversary of the Closing until
the date that is ten (10) years following the Closing, Lender is paid a
prepayment fee in an amount equal to the greater of (i) one percent (1.0%) of
the amount being prepaid or (ii) Yield Maintenance; and
(b) During the period from the tenth (10th) anniversary of the Closing
until the date that is eleven (11) years following the Closing, Lender is paid a
prepayment fee in an amount equal to five percent (5%) of the amount being
prepaid; and
(c) During the period from the eleventh (11th) anniversary of the Closing
until the date that is twelve (12) years following the Closing, Lender is paid a
prepayment fee in an amount equal to four percent (4%) of the amount being
prepaid; and
(d) During the period from the twelfth (12th) anniversary of the Closing
until the date that is thirteen (13) years following the Closing, Lender is paid
a prepayment fee in an amount equal to three percent (3%) of the amount being
prepaid; and
(e) During the period from the thirteenth (13th) anniversary of the Closing
until the date that is fourteen (14) years following the Closing, Lender is paid
a prepayment fee in an amount equal to two percent (2%) of the amount being
prepaid; and
(f) During the period from the fourteenth (14th) anniversary of the Closing
until the date that is fourteen (14) years and six (6) months following the
Closing, Lender is paid a prepayment fee in an amount equal to one percent (1%)
of the amount being prepaid; and
(g) From and after the date that is fourteen (14) years and six (6) months
following the Closing, there shall be no prepayment fee.
3
<PAGE>
"Yield Maintenance" shall mean:
(i) the present value of all future installments due under the Note (or
Notes if more than one Note evidences the Loans in a Loan Pool) including the
principal amount due at maturity, discounted at an interest rate per annum equal
to the Treasury Constant Maturity Yield Index (as defined in the Note) for
instruments having a maturity coterminous with the remaining term of the
Note(s), less
(ii) the principal amount immediately before such prepayment.
Payment following a default shall be deemed a "voluntary" prepayment for the
purposes of the imposition of a prepayment fee. No prepayment fee shall be due
in connection with prepayments resulting from Lender applying insurance or
condemnation proceeds to reduce the principal balance of the Loan, as described
in Section 6 of the Special Stipulations Rider attached hereto.
1.7 Secuity for Loan. Each Loan in a Loan Pool shall be secured by a first
lien and perfected first security interest in all Properties in the Loan Pool,
all leases, rents, income and profits therefrom and all construction, design or
other contracts, documents or drawings concerning or affecting the Properties.
1.8 Liability. A Borrower shall have no personal liability for the
repayment of the Loans or performance under the Loan Documents (as hereinafter
defined), except for (i) misapplication or misappropriation of insurance
proceeds, condemnation proceeds, tenant security deposits, rents and any other
funds due Lender under the Loan Documents, (ii) intentional damage to and waste
of a Property or Properties and damage to a Property or Properties resulting
from gross negligence; (iii) failure to pay taxes or other liens with priority
over Lender's Loan Documents; (iv) damages arising from any fraud or
misrepresentation of Borrower; and (v) damages arising from the existence of
hazardous or toxic substances or the failure of Borrower to comply with
environmental laws. Each Borrower and Guarantor (as defined below) shall
indemnify Lender with respect to any environmental matters, pursuant to a
Hazardous Substances Indemnity Agreement executed by Borrower and Guarantor at
Closing. Either SMC or an entity to be formed by SMC, which must have a minimum
capitalization acceptable to Lender of $500,000 per Loan to which it is
Guarantor and otherwise be acceptable to Lender ("Guarantor"), will be required
to execute a guaranty of Borrower's obligations for the repayment of the items
listed in clauses (i) through (v) above in the form of an Indemnity and Guaranty
Agreement to be executed by Guarantor at pre-Closing. The organizational
documents, financial statements and principals of the Guarantor, as applicable,
are subject to the approval of Lender.
1.9 Deposits.
(a) Borrower shall pay at each Closing and concurrently with each monthly
installment of principal and interest such amount as in Lender's discretion will
be sufficient to pay out of the monies so paid to Lender at least thirty (30)
days before due, all taxes, assessments and similar charges and insurance
4
<PAGE>
premiums affecting the applicable Properties. Notwithstanding the foregoing, if
Lender determines (based on a review of the applicable Property lease) that a
tenant under a Property lease is obligated to pay taxes directly to the taxing
authority and insurance premiums directly to the insurer prior to the due date
thereof, then for so long as such Property lease is in effect, Borrower shall
not be obligated to escrow for the taxes and insurance so paid by such tenant;
provided, however, that Lender must be provided with prompt evidence of each tax
and insurance payment at least fourteen (14) days prior to the due date thereof.
Upon the failure of such tenant and/or Borrower to timely comply with the
foregoing, such exception to the escrow requirement shall terminate and escrows
for taxes and insurance shall thereafter be immediately required as otherwise
provided in this clause (a).
(b) An escrow for tenant improvements and leasing commissions will be
created at each applicable Closing, which in the aggregate shall be equal to
$1,300,000 (as such amount may be allocated by Lender on a Loan Pool by Loan
Pool and Property by Property basis). Such funds will be placed in an interest
bearing account (on a Loan Pool by Loan Pool basis) and interest will be
accumulated in such account for the benefit of Borrower (each, a "TI Reserve").
In lieu of a cash TI Reserve, a Borrower may post a letter of credit with Lender
from an issuer, with an expiry date and upon terms acceptable to Lender
including, without limitation, being a clean, irrevocable, evergreen letter of
credit payable upon presentation of Lender's sight draft. Funds from each TI
Reserve may be disbursed by Lender for tenant improvement work and leasing
commissions associated with tenant rollovers as more particularly provided in
the Loan Documents, provided that any amounts that are disbursed (or drawn) are
replenished by the applicable Borrower within ten (10) days and provided there
is then no default under the applicable Loan Documents.
(c) At the Closing, Lender may require reasonable additional escrows based
upon its underwriting review (whether funded at Closing or on a monthly basis
thereafter).
(d) All funds paid to Lender pursuant to this Section 1.9 shall constitute
additional security for the Loans in the applicable Loan Pool and may be
commingled with Lender's other funds.
1.10 Debt Service Reserve. At the Closing of a Loan Pool, Borrower shall
deposit with Lender an amount equal to one (1) regular monthly installment of
principal and interest on the Loans in such Loan Pool, together with one (1)
installment of any monthly deposits due under the Loan Documents (the "Debt
Service Reserve"). Such amount shall constitute additional security for the
Loans in the Loan Pool and may be commingled with Lender's other funds and shall
not bear interest. Such amount shall be applied by Lender to make the first
monthly installment of principal and interest due on the Loans and the first
monthly installment due in the applicable reserve accounts. Borrower shall have
no obligation to replenish the Debt Service Reserve.
1.11 Repair and Remediation Reserve. At the Closing of each Loan Pool,
Borrower shall deposit with Lender an amount equal to 125% of the estimated
costs of the repairs to be undertaken on the Properties in such Loan Pool in
accordance with the engineering report prepared for Lender in connection
5
<PAGE>
herewith, as estimated by Lender. Such amount shall constitute additional
security for the Loans in the Loan Pool and may be commingled with Lender's or
Lender's Loan servicer's other funds and any interest earned thereon shall be
retained by Lender. Lender or, at Lender's election, Lender's Loan servicer,
shall disburse amounts from such reserve to pay the costs of such repairs,
subject to such terms and conditions as may be provided in the Loan Documents.
Borrower shall pay all costs associated with such disbursements, including the
reasonable out-of-pocket cost of inspections deemed necessary or appropriate by
Lender or Lender's Loan servicer.
1.12 One Time Assumption Right. The Loan Documents shall provide that all
amounts due under the Loans in a Loan Pool shall be due and payable upon the
sale or other transfer of a Property (or Properties) in such Loan Pool or
ownership interests in the applicable Borrower or upon all or any portion of the
Properties in the Loan Pool being further encumbered; provided, however that
Lender shall consent to a one time transfer of ownership of a Property upon the
satisfaction of certain conditions which shall include, without limitation:
(a) No default is then continuing under any of the Loan Documents for such
Loan Pool.
(b) Lender receives no less than sixty (60) days' prior written notice of
the terms of the transfer and such information concerning the proposed
transferee as Lender would require in evaluating an initial extension of credit
to a borrower, including, without limitation, that such proposed transferee is
an entity organized under the laws of the United States of America, any State
thereof or the District of Columbia, which terms and information shall be
acceptable to Lender, and Lender receives a non-refundable application fee equal
to $5,000.00.
(c) Lender receives an assumption fee equal to one percent (1%) of the then
allocated outstanding principal amount of the Loan secured by the transferred
Property and Lender is reimbursed for all out-of-pocket fees and expenses
incurred by Lender in connection with such transfer and assumption.
(d) The proposed transferee executes such documents and agreements as
Lender may reasonably require, in form and substance satisfactory to Lender,
whereby it assumes and agrees to pay the allocated amount of indebtedness of
Borrower under the Loan Documents.
(e) Borrower delivers to Lender, at Borrower's sole cost and expense, such
endorsements to Lender's title insurance policy, hazard insurance policy and
other similar materials as Lender may deem necessary, each in form and substance
satisfactory to Lender.
(f) Borrower executes and delivers to Lender, each in form and substance
satisfactory to Lender, (i) a release of Lender, its officers, directors,
employees and agents, from all claims and liabilities relating to the Loan
secured by such Property and (ii) such agreements and documents as Lender may
require to evidence and ratify Borrower's continuing liability under the Loan
Documents with respect to such Property for any acts or events occurring or
obligations arising prior to or simultaneously with the transfer.
6
<PAGE>
(g) Guarantor executes and delivers to Lender, each in form and substance
satisfactory to Lender, such agreements and documents as Lender may require to
evidence and ratify such party's continuing liability under the Loan Documents
with respect to such Property; provided, however, that if the proposed
transferee or a party associated with the proposed transferee approved by
Lender, in its sole discretion, assumes the obligations of Guarantor under its
guaranty or indemnity agreement with respect to such Property by one or more
agreements, in form and substance satisfactory to Lender, Lender shall release
Guarantor from all obligations arising under its guaranty or indemnity agreement
with respect to such Property after the closing of the transfer.
ARTICLE 2 - LOAN DOCUMENTS
--------------------------
2.1 Loan Documents. All such loan documents as Lender may, in its judgment,
deem necessary or expedient for its protection, including a loan agreement,
promissory note(s), mortgages, deeds of trust or security deeds, assignments of
leases and rents, security agreements, UCC-1 financing statements, environmental
indemnity(ies), guaranty(ies), and appropriate collateral assignments
(collectively, the "Loan Documents"), shall be prepared by counsel for Lender
based on Lender's standard form Loan documents (containing those changes that
are transaction specific or that may be required by the laws of the state in
which a Property is located) and shall contain representations, covenants and
agreements satisfactory to Lender and shall be in all respects in form and
substance satisfactory to Lender in its sole discretion. The UCC-1 financing
statements shall only cover Personal Property (as opposed to trade fixtures,
inventory and other personalty utilized for the operation of the businesses
conducted at the Properties). In the event of any inconsistencies between the
terms hereof and the terms of such Loan Documents, the terms of the Loan
Documents shall control.
ARTICLE 3 - REQUIREMENTS FOR CLOSING
------------------------------------
3.1 Back-up Documents. Each Borrower shall execute the Loan Documents and
shall furnish back-up documentation as may be required by Lender or Lender's
counsel, all of which must be approved by Lender and Lender's counsel in their
sole determination as a condition to Closing. Attached hereto as Exhibit "A" is
a summary of certain requirements for Closing and attached hereto as Exhibit "B"
is a description of Lender's property and liability insurance requirements. The
terms and conditions of this Commitment (together with the Special Stipulations
Rider) shall control over any terms and conditions of Exhibit "A" that are
inconsistent herewith.
3.2 Appraisal, Engineering Report and Environmental Report. This Commitment
is subject to receipt and review of an appraisal, an engineering report and an
environmental report with respect to each Property, all of which shall be
obtained by Lender at Borrower's expense, and all of which must be acceptable in
all respects to Lender. SMC and each Borrower shall cooperate with the parties
producing such reports and shall provide such information as may be necessary in
order to enable such reports to be completed in a timely manner. Lender shall
select the entities to provide the engineering, environmental and appraisal
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reports. SMC authorizes Lender to use the Report Deposit (as defined in Section
4.2) on account of the payment of such costs.
3.3 Counsel for Lender. Graham & James LLP (together with local counsel if
Lender so elects) shall act as counsel for Lender, and such counsel shall
prepare such documents as it considers appropriate to be executed in connection
with the Loans. The address of such counsel is as follows:
Graham & James LLP
885 Third Avenue
24th Floor
New York, New York 10022
Attention: Mitchell Fenton, Esq.
3.4 Loan-to-Value; Debt Service Coverage. This Commitment is expressly
subject to the confirmation by Lender that, as of the Closing date:
(i) the ratio of the Loan Amount with respect to each Property to the fair
market value of such Property, as determined by the appraisal obtained by Lender
hereunder (i.e., the loan-to-value ratio) is equal to or less than 75%;
(ii) the Debt Service Coverage Ratio of each Property is equal to or
greater than 1.25:1. "Debt Service" shall mean principal, interest and reserve
payments due under the Loan Documents for the applicable Loan Pool during the
first year of the Loans in such Loan Pool. "Debt Service Coverage Ratio" shall
mean the ratio of the aggregate Store Sales (as hereinafter defined) at each
Property for the twelve (12) month period prior to such determination,
multiplied by an occupancy cost factor of four percent (4%) (which cost factor
is subject to adjustment by Lender in its sole and absolute discretion based
upon the appraisals and other relevant due diligence), to Debt Service; and
(iii) if any of the Properties in a Loan Pool was acquired by Borrower
within the twelve (12) months preceding the date hereof or is being acquired by
Borrower contemporaneously with the funding of the Loans in such Loan Pool, the
ratio of the allocated Loan Amount secured by such Property to the acquisition
price of such Property, as determined by the contract pursuant to which the
Property is being acquired and a sworn statement thereof to be delivered by
Borrower at the time of the pre-Closing, is equal to or less than 85%.
As used herein, "Store Sales" shall mean with respect to each Property, the
aggregate selling prices of all merchandise sold or delivered in, at, on or from
any part of such property and the charges for all services of any sort
(including receipts from vending machines and revenues from the rental of
merchandise), sold or performed in, at, on or from any part of the Property.
Store Sales includes sales and charges for cash or credit, regardless of
collection in the case of the latter. Store Sales excludes (i) refunds made by
Borrower to its customers for merchandise returned to Borrower, (ii) exchanges
of merchandise between stores of Borrower (or Borrower's affiliates) where such
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<PAGE>
exchanges are made solely for the convenient operation of Borrower's business
and not for the purpose of consummating a sale at another location that has been
made, in fact, at, in, on or from the Property, and (iii) the amount of any
city, county or state sales tax on such sales paid to a taxing authority by
Borrower (but not by any vendor of Borrower). A Store Sale shall be deemed to be
made in the Property if (x) an order therefor is secured or received in the
Property, or (y) pursuant to mail, telegraph, telephone or other similar means,
orders are received or filled at or from the Property.
ARTICLE 4 - FEES, COSTS AND EXPENSES; CLOSING AND FUNDING
---------------------------------------------------------
4.1 Costs and Expenses/Application Fee.
(a) SMC or the applicable Borrower shall pay all costs and expenses
incurred in connection with the preparation for and the closing of the Loans,
whether the Loans close or not (except as set forth in Section 4.6 hereof),
including appraisal fees, engineering examination fees, environmental audit
fees, inspection fees, credit report fees, accountant review fees, insurance
policy review fees, surveyors' fees, zoning/survey consultant's fees, legal fees
(including fees of counsel and local counsel for Lender), intangibles taxes,
note taxes, mortgage taxes, stamp taxes, transfer taxes, all recording costs and
filing fees, all license and permit fees, all title/UCC/litigation/tax lien
search fees, and all title and other insurance premiums. Lender shall not bear
any out-of-pocket costs or expenses whatsoever in connection with this
Commitment or the Loans. This Section 4.1 shall survive the closing of the Loans
and the expiration or termination of this Commitment.
(b) As part of its loan application, SMC has delivered to Lender an
application fee in the amount of $70,000 (the "Application Fee"), which is equal
to $2,500 per Property based on an assumption of a total of twenty-eight (28)
Properties. Such amount is subject to a proportionate increase based on the
actual number of additional Properties reviewed, and SMC (and the applicable
Borrower) shall remain liable for any shortfall.
4.2 Report Deposit. SMC shall be required to make a deposit with Lender in
the amount of $100,000.00 (which amount is based on an assumption of
twenty-eight (28) Properties and shall be subject to a proportionate increase
based on the number of additional Properties for which reports were obtained or
work was performed) on account of the estimated costs and expenses of obtaining
the appraisal, engineering report, environmental report, insurance consultant
report, and credit reports (the "Report Deposit"). [CHECK OPTION (A) OR (B) AS
APPLICABLE]
( ) OPTION A: SMC shall deliver the Report Deposit upon execution of this
Commitment.
(XX) OPTION B: Lender acknowledges that SMC has already made the $100,000
Report Deposit as part of its loan application.
In the event that Lender's out-of-pocket costs and expenses described above
exceed the amount of the Report Deposit, the amount of such excess shall be
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<PAGE>
reimbursed by SMC or the applicable Borrower to Lender out of the Loan proceeds
at the applicable Closing. In the event that the amount of the Report Deposit
exceeds Lender's out-of-pocket costs and expenses, the amount of such excess
shall be credited to SMC or the applicable Borrower by Lender at the last
Closing.
4.3 Lender's Fee. At each Closing, the applicable Borrower shall be
required to pay to Lender a Lender's Fee in an amount equal to one percent (1%)
of the Loan Amount funded at such Closing, which Lender's Fee shall be fully
earned and non-refundable at such Closing. Lender shall retain one-half of one
percent (1/2%) of such Loan Amount from the Commitment Fee and one-half of one
percent (1/2%) of such Loan Amount from the proceeds of the Loan Pool being
funded. If any of the Loans are not closed and funded, the unused portion of the
Commitment Fee shall be credited against Lender's costs, fees and expenses as
otherwise provided herein (and SMC shall remain liable for any shortfall) and
any unused amounts, if any, shall be returned to SMC.
4.4 Commitment Fee. SMC shall be required to pay Lender a Commitment Fee in
the amount of $375,000. The Application Fee shall be credited against, and
treated as part of, the Commitment Fee. SMC shall deliver the Commitment Fee to
Lender upon execution of this Commitment.
(i) If Lender has used any portion of the Commitment Fee to pay the costs
of any appraisal, engineering report or environmental report or other
out-of-pocket costs performed by Lender or its representative under Lender's
internal underwriting procedures, then such amounts shall be reimbursed by the
applicable Borrower to Lender out of the Loan proceeds at the Closing(s).
(ii) If a Loan (or Loans) does not close for any reason other than due to
(x) the failure of SMC, its affiliate(s) and/or the applicable Borrower to
proceed expeditiously and in good faith and to use commercially reasonable
efforts to close such Loan(s) or to (y) the willful default of SMC, its
affiliate(s) and/or the applicable Borrower under the terms of this Commitment
or the loan application submitted by SMC to Lender, then (1) the Report Deposit
(and upon depletion of the Report Deposit, the Commitment Fee) shall be used to
pay the costs of such appraisal, engineering report and environmental report and
(2) the Commitment Fee shall be used to pay the balance due on such costs and
(together with any unused portion of the Report Deposit) any other out-of-pocket
costs or expenses incurred by Lender in connection with this Commitment or the
proposed Loan, and, thereafter, the balance, if any, shall be returned to SMC.
If the Report Deposit and the Commitment Fee are not sufficient to pay all of
the costs of such reports and such other out-of-pocket costs or expenses, then
SMC and/or the applicable Borrower shall immediately pay to Lender such
additional amount as is necessary to pay such costs or expenses in full.
(iii) If a Loan (or Loans) does not close due (x) to the failure of SMC,
its affiliate(s) and/or the applicable Borrower to proceed expeditiously and in
good faith and to use commercially reasonable efforts to close such Loan(s) or
(y) to the willful default of SMC, its affiliate(s) and/or the applicable
Borrower under the terms of this Commitment or the loan application submitted by
SMC to Lender SMC, then Lender shall retain the Commitment Fee as full
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<PAGE>
liquidated damages, but such liquidated damages shall not waive Lender's right
to obtain reimbursement of its costs and expenses as provided in this subsection
(iii). The Report Deposit shall be used to pay the costs of any appraisal,
engineering report and environmental report with respect to such unclosed
Loan(s) required by Section 3.2 hereof and any excess shall be applied to any
other out-of-pocket costs or expenses incurred by Lender in connection with this
Commitment or the proposed Loans, and the remaining portion of the Report
Deposit, if any, shall be returned to SMC. If the Report Deposit shall not be
sufficient to pay the costs of such reports and such other out-of-pocket
expenses, then SMC shall promptly after request from Lender pay to Lender the
additional amount needed to pay such costs or expenses in full.
(iv) SMC's obligations under subparagraphs (i) through (iii) above shall
survive the expiration or termination of this Commitment.
4.5 Rate Lock Fee. Each Borrower shall be required to pay Lender prior to
pre-Closing a Rate Lock Fee in the amount of one percent (1%) of the applicable
Loan Amount in accordance with the following procedure, unless such Borrower
elects to attend the Closing in the office of Lender's counsel, in which event
the Loans may be locked and funded on the same day and no Rate Lock Fee with
respect to such Loans shall be required. Following confirmation by Lender that
all preconditions to pre-Closing have been satisfied and upon Lender's request
for such Rate Lock Fee, the applicable Borrower shall deliver the Rate Lock Fee
by bank wire or other immediately available funds received by Lender no later
than 5:00 P.M. on the date prior to pre-Closing. The Rate Lock Fee shall be
fully earned and, except as hereinafter provided, non-refundable upon receipt by
Lender. In the event that the applicable Loans are funded in accordance with the
terms of this Commitment, the Rate Lock Fee shall be credited against any other
expenses of such Borrower due at Closing and any excess shall be refunded to
such Borrower.
4.6 Legal Fees. Legal fees for the Loans shall not exceed $9,000 per Loan
assuming no unusual circumstances and reasonable document negotiation, plus
disbursements and local counsel fees. In the event that a Loan (or Loans) does
not close (due to no willful default of SMC or its affiliates or the applicable
Borrower and provided that SMC and its affiliates and such Borrower have
proceeded expeditiously and in good faith and used commercially reasonable
efforts to close such Loan), such Borrower shall only be obligated to pay fifty
percent (50%) of Lender's legal fees (plus disbursements) in connection with
such transaction(s) and such Borrower shall pay same to Lender upon demand. In
the event that Lender's counsel performs initial legal due diligence on a
property or properties proposed by SMC or the applicable Borrower to serve as
collateral, but such property or properties do not become part of the collateral
pool supporting a Loan or Loans, then in addition to the fee set forth in the
first sentence hereof, Lender's counsel shall receive a fee equal to its actual
time in reviewing such property(ies), not to exceed Seven Hundred Fifty and
00/100 Dollars ($750) per property.
4.7 Financial Consultant and Other Fees. Lender shall not be obligated to
pay any loan commission and/or brokerage fee and/or consulting fee in connection
with this Commitment, Lender's acceptance thereof or the consummation of the
Loans. [SMC CHECK OPTION (A) OR (B) AS APPLICABLE]
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<PAGE>
(XX) Option A. SMC represents and warrants that it has not dealt with any
finder or broker or consultant in connection with this Commitment
other than Financial Consultant (as hereinafter defined).
( ) Option B. SMC acknowledges, represents and warrants that in addition to
Financial Consultant, it has only dealt with _____________________
("Broker") in connection with this Commitment, and that SMC has agreed
to pay Broker a fee in the amount of $____________ in connection with
the Loans.
SMC shall pay any and all commissions and fees due to the Financial
Consultant, and SMC hereby agrees to indemnify, defend and hold Lender harmless
from any claims for commissions or fees, including any legal fees and expenses,
from any person or party including, without limitation, the Financial Consultant
and Broker. The foregoing representation and such indemnity shall survive the
expiration or termination of this Commitment, or the Closing(s), as applicable.
SMC hereby acknowledges and agrees that Lender shall have no obligation to pay
any commissions and/or fees due to any person or party claiming through SMC or
its affiliates including, without limitation, the Financial Consultant and
Broker.
4.8 Closing and Funding of Loans. Pre-Closing or, if there is no
pre-Closing as provided in Section 4.5 hereof, Closing (i.e., execution and
delivery of all documents and satisfaction of all requirements for Closing as
determined by Lender) shall occur at the offices of Lender's counsel, or at such
other location as agreed to by Lender and SMC. The intended Closing Date for the
Loans is October 4, 1996, and SMC and its affiliates and each Borrower shall
proceed expeditiously and in good faith, and use commercially reasonable
efforts, to close the Loans by such date (it being understood and agreed that if
no additional Properties make up the collateral supporting the proceeds of the
Loans other than the Properties set forth on Schedule A, such event shall not,
in and of itself, constitute a failure by Borrower to proceed in good faith).
Provided that SMC, its affiliates and each Borrower proceed expeditiously and in
good faith, and use commercially reasonable efforts, to close the Loans in a
Loan Pool, if any Loan in such Loan Pool is unable to close because a Property
fails to satisfy the conditions of this Commitment, Lender will have no
obligation to fund such Loan but will fund the remaining Loans in such Loan
Pool. If less than $75,000,000 of the Loans close prior to October 4, 1996,
Lender shall not be obligated to close more than an additional (a) $25,000,000
of Loans (provided that the aggregate amount of all Loans shall not exceed
$75,000,000) between October 5, 1996 and February 14, 1997 upon the same terms
and conditions set forth herein and (b) $25,000,000 of Loans (provided that the
aggregate amount of all Loans shall not exceed $75,000,000) between February 15,
1997 and June 30, 1997 upon the same terms and conditions as set forth herein.
Lender shall have no obligation to close any Loans after June 30, 1997, but may,
in its sole discretion, elect to do so upon such terms and in such amounts as
Lender shall determine. In addition to satisfaction of all of the terms and
conditions of this Commitment, funding of Loan proceeds by Lender ("Closing")
shall be contingent on delivery of the executed Loan Documents, title policy,
survey and other original documents to Lender's counsel or, at Lender's option,
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<PAGE>
to a custodian designated by Lender, and confirmation by Lender's counsel or the
custodian that it has possession of all Loan Documents required under Lender's
conduit program. Such confirmation shall occur and the Loan(s) shall be funded
not later than three (3) business days after the pre-Closing date; provided, in
the event Lender's counsel or the custodian determines that any required
document is missing or incomplete, Borrower shall immediately execute and
deliver to Lender's counsel or the custodian such additional documentation as
may be required by Lender's counsel or the custodian to issue such confirmation,
and the Loan(s) shall be funded within two (2) business days after such
confirmation.
ARTICLE 5 - OTHER CONDITIONS
----------------------------
5.1 Acceptance. Upon the return by Borrower to Lender of a fully executed
copy of this Commitment within seven (7) days after the date hereof, together
with the Commitment Fee provided for in Section 4.4 hereof and the Report
Deposit described in Section 4.2 hereof (if not previously deposited), this
Commitment will constitute an agreement obligating Lender to make and Borrower
to accept the Loans in accordance with the terms and conditions set forth in
this Commitment. If said executed copy of this Commitment and Commitment Fee and
Report Deposit are not received by Lender within seven (7) days from the date
hereof, this Commitment shall be null and void.
5.2 Expiration and Termination. Unless all applicable conditions contained
herein have been met to the satisfaction of Lender and the Loans have been
pre-Closed or Closed within the time schedules set forth in Section 4.8 above,
this Commitment shall automatically expire unless Lender elects otherwise.
Lender may, at its option, terminate its agreement to make the Loans (a) in the
event that there is any material inaccuracy or any material, adverse change in
any information, representations or materials submitted with or in support of
the application for the Loans, (b) in the event of any material adverse change
in the financial condition of any of the Properties (provided that Lender shall
not terminate this Commitment in the event of any material adverse change in the
financial condition of a particular Property, and in such event Lender will have
no obligation to close the Loan(s) related to such Property(ies) but will close
the Loans related to the remaining Properties), SMC or SMC and its affiliates
taken as a whole, any Borrower or any guarantor, indemnitor or any other person
or entity to be liable for repayment of the Loans (SMC, SMC and its affiliates
taken as a whole, any such Borrower and any such guarantor, indemnitor, person
or entity being herein referred to as a "Credit Party") or the material default
or defaults beyond any applicable notice and/or grace periods by any Credit
Party under any material obligation which, in Lender's reasonable determination,
may have an adverse affect on any Credit Party, or any of the Properties
(provided that Lender shall not terminate this Commitment in the event of any
such material, adverse affect on a particular Property, and in such event Lender
will have no obligation to close the Loan(s) related to such Property(ies) but
will close the Loans related to the remaining Properties), or (c) in the event
of any material, adverse change in the condition of any of the Properties,
physical or otherwise, including any changes, whether existing or potential,
caused by pending or threatened condemnation or by casualty (provided that
Lender shall not terminate this Commitment in the event of any such material,
adverse change in the condition of a particular Property, and in such event
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<PAGE>
Lender will have no obligation to close the Loan(s) related to such
Property(ies) but will close the Loans related to the remaining Properties). In
the event that any Credit Party shall become insolvent or make a general
assignment for the benefit of creditors, or if there shall be filed by or
against any Credit Party a petition in bankruptcy, or for the appointment of a
receiver, or if proceedings shall be commenced under any bankruptcy or
insolvency law for any Credit Party's relief or for the composition, extension,
arrangement or adjustment of any Credit Party's obligations, or if any Credit
Party's business shall be discontinued as a going concern, or if there shall be
a suspension of any Credit Party's business, or a default in the performance of
any other obligation any Credit Party may have to Lender, or in case of the
issuance of any warrant or attachment of a material nature against any property
of any Credit Party or the taking of possession of or assumption of control of
all or any substantial part of the property of any Credit Party's business by
any governmental agency, then Lender's commitment to make the Loans shall
automatically and immediately terminate without further notice and without
further action on the part of Lender unless Lender elects otherwise. In the
event of any such expiration or termination, Lender shall have no further
obligations hereunder (except with respect to the return of any fees to Borrower
to the extent provided in this Commitment), and SMC and the Borrower(s) shall be
liable only for damages, costs and expenses to the extent provided in this
Commitment.
5.3 SMC's Representations and Warranties. SMC represents and warrants that
the statements contained herein and in all documentation provided to Lender and
all other representations or statements made by or on behalf of SMC and the
Borrower(s) to Lender in connection with the application for and closing of the
Loans are true and complete in all material respects and do not omit any fact or
information material to Lender's evaluation of said application and of SMC's and
each such Borrower's compliance with the conditions for the Closing(s). SMC
acknowledges that Lender will rely on this warranty and representation in making
the Loans. If SMC or the Borrower(s) has made any material misrepresentation in
connection with this Commitment for and closing of the Loans, such shall be a
default under the Loan Documents entitling Lender to exercise any and all of its
rights upon a default under the Loan Documents. In addition, if all or any of
the Loans have not closed and Lender elects to terminate its commitment to make
the Loans due to any material misrepresentation as provided in Section 5.2
above, then notwithstanding any other provision herein, the Commitment Fee, the
Rate Lock Fee (if paid) and the Report Deposit shall be retained as liquidated
damages by Lender as its sole remedy, other than the right to collect from SMC
and the Borrower(s) the out-of-pocket costs and expenses referred to in Section
4.1 above. SMC and the applicable Borrower shall reaffirm the continuing
accuracy and completeness of such warranties and representations at each
Closing.
5.4 Confidentiality. Subject to the next sentence, Lender agrees to keep
confidential any and all financial, technical, commercial or other information
concerning the business affairs of SMC that SMC has provided to Lender and that
was not otherwise generally available to the public. Notwithstanding the
foregoing, to the extent that Lender deems necessary, SMC understands that such
information may be included in related marketing efforts and disclosure
documents to be utilized in connection with the sale or placement by Lender or
its affiliate, First Union Capital Markets, Inc., of one or more classes of
Commercial Mortgage Pass-Through Certificates representing interests in a trust
14
<PAGE>
consisting primarily of all or a portion of the Loans and other mortgage loans.
Prior to the Closing of a Loan Pool, and except as otherwise required pursuant
to applicable law, SMC and its affiliates agree to keep confidential the Loans
in such Loan Pool and any person, entity or information introduced or revealed
by Lender to SMC in connection therewith, unless SMC receives the prior written
consent of Lender. In addition, SMC agrees not to enter into any real estate
mortgage financing transaction that involves any of the Properties or any
information involved in the Loans for a period of two (2) months after the
execution and delivery of this Commitment.
5.5 Intentionally Omitted.
5.6 Role of Financial Consultant. [CHECK OPTION A OR B AS APPLICABLE]
(XX) Option A. Chase Securities, Inc. (the "Financial Consultant") has
acted as Borrower's consultant in connection with this Commitment.
Financial Consultant is acting as an independent contractor and not as
an agent, employee, partner, joint venturer or affiliate of Borrower.
SMC understands that Financial Consultant does not have the authority
to, and cannot, bind Lender in any respect, including, without
limitation, the waiver of any condition contained herein, or the
funding of such Loans.
( ) Option B. There is no Financial Consultant involved in this
transaction.
5.7 Miscellaneous. Lender shall be under no obligation to make a Loan
unless and until all of the requirements hereunder have been fully satisfied.
Except as otherwise specifically provided herein, all documents, certificates,
permits and other items contemplated hereby, all inspections, appraisals,
evaluations and approvals contemplated hereby, all payments required hereby, and
all other conditions, matters or things of any nature contemplated hereby to
exist, be performed or be provided, shall all be satisfactory to Lender in its
reasonable discretion and shall exist, be performed and be provided to Lender
prior to the applicable Closing. Neither this Commitment, nor any right to
receive any of the proceeds of the Loans shall be assignable by SMC or a
Borrower without the prior written consent of Lender, and any attempt to make
such assignment without such consent shall be void. Execution of this Commitment
by Lender shall not imply the approval by Lender of any document or information
previously furnished to Lender, it being acknowledged by all parties hereto that
no approvals have been given by Lender with respect to the conditions and
requirements set forth in this Commitment. This Commitment contains the entire
agreement of SMC and Lender with respect to the matters referred to herein and
supersedes entirely any and all prior written or oral agreements relating to the
Loans (except for the loan application submitted by SMC to Lender; it being
understood and agreed that the terms and conditions of this Commitment shall
control over any terms and conditions of the loan application that are
inconsistent herewith). There are no contemporaneous oral agreements relating to
the subject matter hereof. No change in the provisions of this Commitment and no
approval or consent of Lender shall be binding unless in writing and executed in
the name of, and by an officer of, Lender. Time is of the essence with respect
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<PAGE>
to all dates and periods of time set forth in this Commitment. Subject to
Section 2.1 hereof, this Commitment and all terms and provisions hereof shall
survive the Closing and shall not be merged into any of the Loan Documents.
Whenever anything is described herein in general terms and one or more examples
or components thereof is set forth after the word "including" or is otherwise
associated with such general description, the examples or components shall be
deemed illustrative only and shall not be construed as limiting the generality
of the description in any way. This Commitment shall be interpreted, construed
and enforced according to the laws of the State of New York. When any sums are
stated herein as being retained by Lender as full liquidated damages, such sums
are being retained under circumstances where it will be difficult to ascertain
the sum required to compensate Lender for the loss of opportunity to make the
Loan(s), the loss of opportunity to make other loans on account of time and
attention relating to the Loan(s) and for the internal expenses incurred by
Lender in connection with the review, evaluation and processing of material and
information relating to the Loan(s) and such liquidated damages represents the
reasonable, good faith attempt of the parties hereto to liquidate such damage in
advance.
5.8 Special Stipulations. [CHECK OPTION A OR OPTION B AS APPLICABLE]
(XX) Option A. The Special Stipulations Rider attached hereto contains
seven (7) provisions which are by this reference made a part hereof
and shall control over any provisions hereof which are inconsistent
therewith.
( ) Option B. There is no Special Stipulations Rider attached to this
Commitment.
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IN WITNESS WHEREOF, Lender hereby executes this Commitment as of the date
first above written.
FIRST UNION NATIONAL BANK OF
NORTH CAROLINA
By: /s/ Barry P. Reiner
----------------------------
Name: Barry P. Reiner
----------------------------
Title: Vice President
----------------------------
The foregoing Commitment is hereby agreed to and accepted by the
undersigned this ____ day of September, 1996.
SERVICE MERCHANDISE COMPANY, INC.
By: /s/ Thomas L. Garrett, Jr.
----------------------------
Name: Thomas L. Garrett, Jr.
----------------------------
Title: Treasurer
----------------------------
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SPECIAL STIPULATIONS RIDER
TO COMMITMENT LETTER DATED SEPTEMBER 9, 1996
FROM FIRST UNION NATIONAL BANK OF NORTH CAROLINA
TO SERVICE MERCHANDISE COMPANY, INC.
The Commitment to which this rider is attached is subject to the following:
1. Lender may elect to create one or more pools with respect to the Loans
and the respective Properties securing the Loans (each, a "Loan Pool") to such
extent and in such manner as Lender determines in its sole discretion. In
addition, the Loans in each Loan Pool shall be cross collateralized and cross
defaulted to such extent and in such manner as lender determines in its sole
discretion; provided, however, that the Loans in one Loan Pool shall not be
cross collateralized or cross defaulted with the Loans in any other Loan Pool.
2. A Property may be released from the lien of the Lender's mortgage
subject to the following conditions:
(a) The Lender shall be provided with at least forty-five (45) days' prior
written notice and there shall be no default under the Loan Documents either on
the date of such written notice or on the actual release date.
(b) The applicable Borrower shall pay to the Lender a release price in an
amount equal to one hundred ten percent (110%) of the then allocated loan amount
for the Property to be released (as determined by Lender), which amount shall be
applied against the outstanding balance of the Loans.
(c) In order for the applicable Borrower to have the right to request a
release either (x) the "DSCR" (as defined below) for the Property to be released
is less than the average coverage for the entire Loan Pool, provided that the
coverage for the Loan Pool is at least 1.25 or (y) the aggregate DSCR for all
Properties in the Loan Pool (excluding the Property requested to be released)
that would remain after the release calculated for the twelve (12) month period
immediately prior to the release shall not be less than 1.30.
(d) The Borrower shall, at its expense, provide (i) all financial and other
information to substantiate the foregoing to the Lender's satisfaction,
including updated sales information and appraisals if required by the Lender in
order to determine such current DSCR's and (ii) title endorsements acceptable to
the Lender insuring that the lien of the mortgage on the remaining Properties
shall continue in effect with first lien priority and shall be unaffected by the
release of such Property. All expenses incurred by the Lender in connection with
a request for a release shall be paid by the applicable Borrower, including,
without limitation, attorneys' fees.
(e) The payment of a release price for the release of a Property shall be
deemed to be a prepayment of the applicable Loan and shall be subject to the
prepayment lock-out and yield maintenance provisions.
<PAGE>
(f) The released Property shall be transferred to an entity that is not the
immediate parent of the applicable corporate Borrower; provided, however, that
title may pass through such immediate parent to another entity in a series of
transfers that occur on the same day, and such Borrower shall provide Lender
with evidence reasonably satisfactory to Lender confirming the foregoing,
including, without limitation, a copy of the deed (or deeds) conveying title to
the released Property, certified to be true and complete by such Borrower, and a
certificate of such Borrower confirming the name, address and non-immediate
parent status of such ultimate transferee.
(g) In no event shall more than twenty percent (20%), rounded up or down to
the nearest whole number, of the Properties in a Loan Pool be released within
any calendar year.
(h) The term "DSCR" shall mean the Debt Service Coverage Ratio as
determined by Lender based on the rolling twelve (12) month Store Sales
multiplied by a market occupancy cost factor (which shall be the same occupancy
cost factor applied pursuant to Section 3.4(ii) of the Commitment), divided by
the principal, interest and reserve payments due under the Loan Documents for
such twelve (12) month period.
3. Each Borrower shall be required to enter into a bondable lease for each
Property upon terms, and in form, acceptable to Lender with SMC as tenant (or
with an operating subsidiary of SMC as tenant, in which event SMC shall guaranty
the obligations of the tenant under the lease pursuant to a guaranty acceptable
to Lender). Each lease shall provide for a minimum term of fifteen (15) years
from the date of the applicable Closing with a seven (7) year renewal option
exercisable at the option of the tenant thereunder. A default under any lease
shall constitute a Loan default. Each lease must be at market rents as
determined by an independent third party appraiser approved by Lender. The
tenant thereunder shall be required to pay for all operating expenses,
maintenance, taxes, insurance and other amounts.
4. A Borrower shall have the right to substitute a Property with a property
outside of the applicable Loan Pool at anytime up to the ninetieth (90th) day
after the closing of Lender's (or its affiliate's) securitization which includes
the Loans in the Loan Pool. Such time restriction is based on a REMIC
requirement currently in effect, and is subject to adjustment by Lender based on
any changes to the REMIC requirements. The substitute property must be
acceptable to (a) Lender, if prior to such securitization or (b) the REMIC
trustee, applicable rating agencies and servicer, if post- securitization, which
approval shall include, without limitation, value, property type, location and
operating income.
5. In no event shall more than twenty percent (20%), rounded up or down to
the nearest whole number, of the Properties in a Loan Pool be permitted to "go
dark" at the same time, and a violation of this restriction shall be a default
under the applicable Loan Documents. For the purposes hereof, a Property shall
be deemed "go dark" if it is more than two-thirds (2/3) vacant for any
consecutive six (6) month period. In addition, it shall be a default under the
<PAGE>
applicable Loan Documents if a Property becomes vacant and such vacancy triggers
a default and/or a purchase option (or termination option in the case of a
ground lease) under another agreement affecting the Property.
6. During the first eight (8) years of the term of a Loan, if (a) less than
sixty percent (60%) of a Property is damaged or destroyed or taken by eminent
domain, the applicable Borrower shall be required to restore the Property and
Lender shall make the insurance or condemnation proceeds available for
restoration pursuant to the disbursement requirements contained in the
applicable Loan Documents or (b) sixty percent (60%) or more of a Property is
damaged or destroyed or taken by eminent domain, the applicable Borrower shall
have the right, subject to the other terms of the Loan Documents and provided
that no default then exists, to elect (i) to restore the Property, in which case
Lender shall make the insurance or condemnation proceeds available for
restoration pursuant to the disbursement requirements contained in the
applicable Loan Documents or (ii) not to restore the Property, in which case
Lender shall apply the insurance or condemnation proceeds to repayment of the
Loan and Borrower shall pay Lender, for application to the Loans as provided in
Subsection 2(b), an amount equal to the difference between the applicable
Release Price and the amount of such insurance or condemnation proceeds (without
prepayment penalty). Upon such payment by Borrower, the Property shall be
released from the lien of the applicable mortgage pursuant to Section 2 hereof
without regard to the limitation set forth in clause (g) of Section 2. From and
after the first eight (8) years of the term of a Loan, it shall be at Lender's
election (regardless of the amount damaged, destroyed or taken) whether to
require such Borrower to restore the Property or to apply the insurance or
condemnation proceeds to the repayment of the Loan. Notwithstanding the
foregoing, if Borrower exercises its election pursuant to Section 1.5 of this
Commitment to structure the Loans with a fifteen (15) year term based upon a
fifteen (15) year amortization schedule, then at any time during the term of a
Loan, if (1) less than sixty percent (60%) of a Property is damaged or destroyed
or taken by eminent domain, the applicable Borrower shall be required to restore
the Property and Lender shall make the insurance or condemnation proceeds
available for restoration pursuant to the disbursement requirements contained in
the applicable Loan Documents or (2) sixty percent (60%) or more of a Property
is damaged or destroyed or taken by eminent domain, the applicable Borrower
shall have the right, subject to the other terms of the Loan Documents and
provided that no default then exists, to elect (x) to restore the Property, in
which case Lender shall make the insurance or condemnation proceeds available
for restoration pursuant to the disbursement requirements contained in the
applicable Loan Documents or (y) not to restore the Property, in which case
Lender shall apply the insurance or condemnation proceeds to repayment of the
Loan.
7. In addition to the items set forth in Exhibit "A", the following items
are conditions to the closing of the Loans:
(a) SMC shall provide Lender with copies of its most recent 10-K and 10-Q
reports;
(b) Lender may inspect and approve each Property;
(c) In connection with any Property that is subject to a ground lease, SMC
or the applicable Borrower shall provide Lender with an estoppel, recognition
<PAGE>
agreement or lease amendment (as determined by Lender) satisfactory to Lender
with respect to any defaults under the ground lease and the rights of Lender as
leasehold mortgagee. In addition, if the ground lessor is SMC or another
affiliate of the Borrower, then Lender shall have the right to have the
applicable Loan secured by a first lien on and perfected security interest in
the fee estate of the Property (in addition to a leasehold mortgage);
(d) Lender shall be in receipt of a certificate of completion from an
architect or engineer of record with respect to any Property or improvements
thereon if the same shall have been completed or substantially renovated within
three (3) years of the date of this Commitment (only to the extent that any such
certificate of completion is required by local law);
(e) A schedule of Personal Property prepared by the same company that
prepared the engineering report for the Properties shall be delivered to Lender
showing all Personal Property used in the operation of a Property (as opposed to
trade fixtures, inventory and other personalty utilized for the operation of the
business conducted at the Property), which shall be subject to a first priority
security interest in favor of Lender and perfected by a UCC-1 financing
statement and shall be certified by Borrower as complete and correct;
(f) A revenue statement with respect to each lease of a Property showing a
minimum Debt Service Coverage Ratio in accordance with Section 3.4 of the
Commitment;
(g) The Property shall be managed by an entity acceptable to Lender in
accordance with a short form management agreement approved by Lender. An
affiliate of SMC (owned and controlled by SMC) is presently an acceptable
manager. All management contracts or agreements with shall be subordinate to the
Mortgages in a Loan Pool, shall be assigned to Lender as additional security and
may be terminated by Lender, at its election, upon the occurrence of an Event of
Default under the applicable Loan Documents; and
(h) Each Borrower shall be required to furnish Lender within thirty (30)
days after the close of each fiscal year with financial statements certified by
the chief financial officer of SMC (or its successor) and an authorized officer
of such Borrower, which shall consist of the annual sales information for the
store located at each Property together with a schedule of capital expenditures
made by the tenant at such Property (the "Statements"). In addition, each
Borrower shall furnish Lender with audited financials of SMC (or its successor)
within thirty (30) days of same becoming available. In addition, each Borrower
and Guarantor shall furnish Lender within thirty (30) days after the close of
each fiscal year with a balance sheet and a profit and loss statement certified
by the chief financial officer of the Guarantor (or its successor) and an
authorized officer of such Borrower. In addition, monthly reports of sales
information for the store located at each Property, certified by the chief
financial officer of SMC (or its successor) and an authorized officer of each
Borrower shall be required for the first twelve (12) months following the
Closing of each Loan Pool. Lender agrees to instruct Lender's Loan servicer to
require any recipient of the financial information delivered by Borrower
pursuant to this clause (h) to sign a confidentiality agreement with respect to
such financial information.
<PAGE>
The Foregoing Special Stipulations shall control over any provisions of the
Commitment which are inconsistent herewith.
LOAN AGREEMENT
Dated as of October 4, 1996
by and between
SMC-SPE-1, INC., a Delaware corporation,
as Borrower
and
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
a national banking association,
as Lender
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C>
ARTICLE 1 DEFINITIONS.....................................................................................4
1.1 Definitions.....................................................................................4
1.2 Principles of Construction.....................................................................11
ARTICLE 2 GENERAL TERMS..................................................................................11
2.1 Loan Commitment; Disbursement to Borrower......................................................11
2.1.1 The Loans.............................................................................11
2.1.2 The Notes.............................................................................11
2.2 Loan Repayment/Prepayment......................................................................12
2.2.1 Loan Repayment........................................................................12
2.2.2 Prepayment............................................................................12
2.3 Total Sale.....................................................................................16
2.4 Transfer of Individual Property................................................................18
2.5 Substitution of a Property.....................................................................18
2.6 TI Reserve.....................................................................................21
ARTICLE 3 REPRESENTATIONS AND WARRANTIES.................................................................22
3.1 Borrower's Representations.....................................................................22
3.2 Survival of Representations....................................................................23
ARTICLE 4 DEFAULTS.......................................................................................23
4.1 Event of Default...............................................................................23
4.2 Remedies.......................................................................................24
ARTICLE 5 MISCELLANEOUS..................................................................................25
5.1 Survival.......................................................................................25
5.2 Lender's Discretion............................................................................25
5.3 Governing Law..................................................................................25
5.4 Modification; Waiver in Writing................................................................25
5.5 Notices........................................................................................25
ARTICLE 6 SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL...............................................26
6.1 Headings.......................................................................................26
6.2 Successors and Assigns; Assignment.............................................................27
6.3 Severability...................................................................................27
6.4 Expenses; Indemnity............................................................................27
6.5 Exhibits Incorporated..........................................................................27
6.6 No Joint Venture or Partnership................................................................27
6.7 Borrower's Waivers.............................................................................27
6.8 Construction of Documents......................................................................28
6.9 Prior Agreements...............................................................................28
6.10 Exculpation....................................................................................28
6.11 Maximum Interest...............................................................................28
EXHIBIT A Initial Allocated Loan Amounts.................................................................31
</TABLE>
<PAGE>
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT (this "Agreement"), dated as of October 4, 1996, by and
between FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking
association, having an address at One First Union Center, DC6, Charlotte, North
Carolina 28288- 0166 (together with its successors and assigns, "Lender"), and
SMC-SPE-1, a Delaware corporation, having an address at c/o Service Merchandise
Company, Inc., 7100 Service Merchandise Drive, Brentwood, Tennessee 37027
("Borrower"). All capitalized terms used herein shall have the respective
meanings set forth in Section 1.1 hereof.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Borrower desires to obtain mortgage loan financing in the
aggregate principal amount of FIFTY-TWO MILLION EIGHT HUNDRED THIRTY THOUSAND
AND 00/100 DOLLARS ($52,830,000.00) (collectively, the "Loans") in connection
with the acquisition or financing of nineteen (19) Service Merchandise locations
(individually, a "Property" and collectively, the "Properties"), as more
specifically described in the "Mortgages" (as hereinafter defined); and
WHEREAS, the Loans are evidenced by nineteen (19) Promissory Notes and
secured by nineteen (19) Mortgages on the Properties;
WHEREAS, Lender is willing to make the Loans to Borrower, subject to and in
accordance with the terms of this Agreement and the other Loan Documents.
NOW, THEREFORE, in consideration of the covenants, agreements,
representations and warranties set forth in this Agreement, and other good and
valuable consideration, the parties hereto hereby covenant, agree, represent and
warrant as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. For all purposes of this Agreement, except as otherwise
expressly required or unless the context clearly indicates a contrary intent:
"Affiliate" of any specified Person shall mean any Person or entity (i)
which owns beneficially, directly or indirectly, more than fifty percent (50%)
of the outstanding shares of common stock or which is otherwise in control of
Borrower, (ii) of which more than fifty percent (50%) of the outstanding voting
securities are owned beneficially, directly or indirectly, by any entity
described in clause (i) above, or (iii) which is controlled by an entity
described in clause (i) above; provided that for the purposes of this definition
the term "control" and "controlled by" shall have the meanings assigned to them
in Rule 405 under the Securities Act of 1933, as amended.
"Allocated Loan Amount" shall mean the Initial Allocated Loan Amount of
each Property, as such amount may be adjusted from time to time as hereinafter
set forth. Upon each adjustment in the principal portion of the Indebtedness
<PAGE>
(each, a "Total Adjustment"), whether as a result of amortization, prepayment or
as otherwise expressly provided herein or in any other Loan Document, each
Allocated Loan Amount shall be increased or decreased, as the case may be, by an
amount equal to the product of (i) the Total Adjustment, and (ii) a fraction,
the numerator of which is the applicable Allocated Loan Amount (prior to the
adjustment in question) and the denominator of which is the aggregate of the
Allocated Loan Amounts (prior to the adjustment in question). However, when the
principal portion of the Indebtedness is reduced as a result of Lender's receipt
of (i) a Release Price, the Allocated Loan Amount for the Property being
released and discharged from the encumbrance of the applicable Mortgage shall be
reduced to zero (the amount by which such Allocated Loan Amount is reduced being
referred to as the "Released Allocated Amount"), the applicable Mortgage,
Assignment of Leases and other Collateral Documents with respect to such Loan
shall be satisfied and discharged (of record, if applicable), and each other
Allocated Loan Amount shall be decreased by an amount equal to the product of
(1) the excess of (a) the Release Price over (b) the Released Allocated Amount,
and (2) a fraction, the numerator of which is the applicable Allocated Loan
Amount for each Property (prior to the adjustment in question) and the
denominator of which is the aggregate of all of the Allocated Loan Amounts
(prior to the adjustment in question) other than the Allocated Loan Amount
applicable to the Property for which the Release Price was received or (ii) the
sum of Net Proceeds (which term for the purposes of computing the Allocated Loan
Amount only shall be deemed to include casualty and condemnation proceeds that
are applied towards the reduction of the Indebtedness as set forth in Section
1.9 of the Mortgages) and Borrower's Contribution (if any), the Allocated Loan
Amount for the Property with respect to which such sum was received shall be
reduced to zero (the amount by which such Allocated Loan Amount is reduced being
referred to as the "Foreclosed Allocated Amount"), the applicable Mortgage,
Assignment of Leases and other Collateral Documents with respect to such Loan
shall be satisfied and discharged (of record, if applicable), and each other
Allocated Loan Amount shall (x) if the Net Proceeds exceed the Foreclosed
Allocated Loan Amount (such excess being referred to as the "Surplus Net
Proceeds"), be decreased by an amount equal to the product of (1) the Surplus
Net Proceeds and (2) a fraction, the numerator of which is the applicable
Allocated Loan Amount for each Property (prior to the adjustment in question)
and the denominator of which is the aggregate of all of the Allocated Loan
Amounts, (prior to the adjustment in question) other than the Allocated Loan
Amount applicable to the Property with respect to which the Net Proceeds were
received (such fraction being referred to as the "Net Proceeds Adjustment
Fraction"), (y) if the Foreclosed Allocated Amount exceeds the sum of Net
Proceeds and any Borrower's Contribution (such excess being referred to as the
"Net Proceeds Deficiency"), be increased by an amount equal to the product of
(1) the Net Proceeds Deficiency and (2) the Net Proceeds Adjustment Fraction, or
(z) if the sum of Net Proceeds and any Borrower's Contribution equals the
Foreclosed Allocated Amount, remain unadjusted.
"ALTA" shall mean American Land Title Association, or any successor
thereto.
"Annual Release Limit" shall have the meaning specified in Section
2.2.2(c)(4).
"Assignment of Leases" shall mean, with respect to each Loan, that certain
first priority Assignment of Leases and Rents, dated as of the date hereof, from
Borrower, as assignor, to Lender, as assignee, with respect to the Property that
is encumbered by the applicable Mortgage, assigning to Lender all of Borrower's
<PAGE>
interest in and to the Leases and Rents of such Property as security for the
Loan, as such Assignment of Leases may be amended, restated, replaced,
supplemented or otherwise modified from time to time.
"Borrower" shall have the meaning specified in the first Paragraph hereof.
"Borrower's Contribution" shall have the meaning specified in Section 1.9
of the Mortgages.
"Business Day" shall mean any day other than a Saturday, Sunday or any
other day on which national banks in North Carolina are not open for business.
"Closing Date" shall mean the date hereof.
"Code" shall mean the Internal Revenue Code of 1986.
"Collateral Security Documents" shall mean, with respect to each Loan, any
document or instrument given as security for the Note evidencing such Loan,
including, without limitation, the Mortgage and the Assignment of Leases, as the
same may be amended, restated, replaced, supplemented or otherwise modified from
time to time.
"Conditional Commitment" shall mean the Conditional Commitment Letter from
Lender and accepted by SMC dated September 9, 1996, together with the Special
Stipulations Rider and Exhibit A and Exhibit B attached thereto.
"Debt Service" shall mean, with respect to each Loan, the amount of
interest, principal and reserve payments due and payable in respect of such Loan
in accordance with the applicable Note and the other Loan Documents during an
applicable period.
"DSCR" shall mean the quotient obtained by dividing (i) the product of
Store Sales at a Property (or Properties) for the twelve (12) month period
immediately prior to the date for which the computation is made, multiplied by
four (4%) per cent, by (ii) Debt Service for the corresponding period.
"Environmental Indemnity" shall mean that certain Hazardous Substances
Indemnity Agreement of even date herewith, by Borrower and Indemnitor in favor
of Lender with respect to environmental conditions on the Properties, as the
same may be amended, restated, replaced, supplemented or otherwise modified from
time to time.
"Event of Default" shall have the meaning specified in Section 4.1.
"Fiscal Year" shall mean each annual period commencing on the first (1st)
day after the end of the immediately preceding such annual period and ending the
Sunday nearest the end of each calendar year of the term of this Agreement, or
such other fiscal year of Borrower as Borrower may select from time to time with
the prior written consent of Lender.
<PAGE>
"GAAP" shall mean generally accepted accounting principles in the United
States of America as of the date of the applicable financial report.
"Governmental Authority" shall mean any court, board, agency, commission,
office or authority of any nature whatsoever for any governmental unit (federal,
state, county, district, municipal, city or otherwise) whether now or hereafter
in existence.
"Improvements" shall have the meaning specified in the applicable Mortgage
with respect to each Property.
"Indebtedness" shall mean the aggregate indebtedness in the original
principal amounts set forth in, and evidenced by, the Notes, together with all
other obligations and liabilities of Borrower due or to become due to Lender
pursuant to the Notes, this Agreement or any other Loan Document, including,
without limitation, all interest thereon.
"Indemnitor" shall mean SMC-HC, Inc., a Delaware corporation.
"Indemnity" shall mean that certain Indemnity and Guaranty Agreement of
even date herewith, by Indemnitor in favor of Lender, as the same may be
amended, restated, replaced, supplemented or otherwise modified from time to
time.
"Initial Allocated Loan Amount" shall mean, with respect to each Loan, the
principal amount of the applicable Note evidencing such Loan, as set forth on
Exhibit A attached hereto and by this reference a part hereof.
"Lease" shall mean, with respect to each Loan and the applicable Property,
all leases, licenses, tenancies, concessions and occupancy agreements of such
Property or the Improvements or the fixtures or equipment or any portion thereof
or any interest therein, now or hereafter entered into.
"Lender" shall have the meaning specified in the first Paragraph hereof.
"Lien" shall mean, with respect to each Loan and the applicable Property,
any mortgage, deed of trust, deed to secure debt, lien, pledge, hypothecation,
assignment, security interest, or any other encumbrance, charge or transfer of,
on or affecting such Property or any portion thereof or any interest therein,
including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, any financing statement, and mechanic's, materialmen's and
other similar liens.
"Loan" shall mean one of the Loans, which shall be evidenced by a Note and
secured by the Mortgages and the other Collateral Security Documents with
respect to such Loan, to be made by Lender to Borrower pursuant hereto.
"Loans" shall have the meaning specified in the recitals hereof, and shall
refer, collectively, to each Loan.
<PAGE>
"Loan Documents" shall mean, collectively, shall mean this Agreement, the
Mortgages, the Notes, the Assignments of Leases, the Environmental Indemnity,
the Indemnity, the Loan Application submitted by SMC to Lender dated August 16,
1996, the Conditional Commitment and all other agreements, instruments,
certificates or documents executed and delivered by Borrower or any Affiliate of
Borrower in connection with the Loans.
"Maturity Date" shall mean November 30, 2011.
"Mortgage" shall mean, with respect to each Loan and the applicable
Property, that certain first priority (i) Mortgage and Security Agreement, (ii)
Leasehold Mortgage and Security Agreement, (iii) Deed of Trust and Security
Agreement or (iv) Deed to Secure Debt and Security Agreement, as applicable,
executed and delivered by Borrower as security for such Loan and the other Loans
and encumbering such Property, as the same may be amended, restated, replaced,
supplemented or otherwise modified from time to time.
"Net Proceeds" shall mean, with respect to each Loan and the applicable
Property, the excess of (i)(x) the purchase price (at foreclosure or otherwise)
actually received by Lender with respect to such Property as a result of the
exercise by Lender of its rights, powers, privileges and other remedies after
the occurrence of an Event of Default, or (y) if Lender (or Lender's nominee) is
the purchaser at foreclosure by credit bid, then the amount of such credit bid,
in either case, over (ii) all costs and expenses, including, without limitation,
all reasonable attorneys' fees and disbursements and any brokerage fees, if
applicable, incurred by Lender in connection with the exercise of such remedies,
including the sale of such Property after a foreclosure against the Property.
"Note" shall mean, with respect to each Loan, the Promissory Note of even
date herewith made by Borrower in favor of Lender in the Initial Allocated Loan
Amount of such Loan, as the same may be amended, restated, replaced,
supplemented or otherwise modified from time to time.
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"Prepayment Date" shall have the meaning specified in Section 2.2.2.
"Property" shall mean, with respect to each Loan, the parcel of real
property and the Improvements thereon encumbered by the Mortgage specifically
corresponding to such Loan, together with all rights and property pertaining to
such real property and Improvements, as more particularly described in the
granting clauses of such Mortgage and referred to therein as the "Property".
"Rating Agency" shall mean any nationally recognized statistical agency
selected by Lender including, without limitation, Duff & Phelps Rating Co.,
Fitch Investors Services, Inc., Moody's Investors Services, Inc., and/or
Standard and Poors Corporation, collectively, and any successor to any of them;
provided, however, that at any time during which a Loan is an asset of a
<PAGE>
securitization or is otherwise an asset of any rated transaction, "Rating
Agency" shall mean the rating agency or rating agencies that from time to time
rate the securities, certificates or other instruments issued in connection with
such securitization or other transaction.
"Release" shall have the meaning specified in Section 2.2.2.
"Release Price" shall have the meaning specified in Section 2.2.2.
"Released Property" shall have the meaning specified in Section 2.2.2.
"REMIC" shall mean a "real estate mortgage investment conduit" within the
meaning of the Code.
"REMIC Provisions" shall mean the provisions of the federal income tax law
relating to REMICs, which appear at Sections 860A through 860G of the Code, and
any related provisions and proposed, temporary and final Treasury regulations
and published rulings, notices and announcements promulgated thereunder, as the
foregoing may be in effect from time to time.
"REMIC Trust" shall have the meaning specified in Section 2.5.2.
"Rents" shall mean, with respect to the Property, all rents, royalties,
issues, profits, revenue, income and other benefits arising from the Leases and
renewals thereof.
"Satisfaction" shall have the meaning specified in Section 2.2.2.
"Secondary Market Transaction" shall have the meaning specified in Section
2.3(14).
"SMC" shall mean Service Merchandise Company, Inc., a Tennessee
corporation.
"Startup Date" shall have the meaning specified in Section 2.5.2.
"State" shall mean, with respect to each Property, the State or
Commonwealth in which such Property or any part thereof is located.
"Store Sales" shall mean, with respect to each Property, the aggregate
selling prices of all merchandise sold or delivered in, at, on or from any part
of such Property and the charges for all services of any sort (including
receipts from vending machines and revenues from the rental of merchandise),
sold or performed in, at, on or from any part of the Property. Store Sales
includes sales and charges for cash or credit, regardless of collection in the
case of the latter. Store Sales excludes (i) refunds made by the retail operator
at such Property to its customers for merchandise returned to such retail
operator, (ii) exchanges of merchandise between stores of Borrower or such
retail operator (or Borrower's or such retail operator's affiliates) where such
exchanges are made solely for the convenient operation of such retail operator's
business and not for the purpose of consummating a sale at another location that
has been made, in fact, at, in, on or from the Property, and (iii) the amount of
any city, county or state sales tax on such sales paid to a taxing authority by
<PAGE>
Borrower or such retail operator (but not by any vendor of such retail
operator). A Store Sale shall be deemed to be made in the Property if (x) an
order therefor is secured or received in the Property, or (y) pursuant to mail,
telegraph, telephone or other similar means, orders are received or filled at or
from the Property.
"TI Costs" shall mean costs and expenses incurred by Borrower for the
payment of leasing commissions and expenditures related to repairs, replacements
and improvements (including any tenant work allowance) in connection with the
leasing of a Property or any portion thereof to a new tenant or the renewal or
extension of a Lease to an existing tenant.
"TI Reserve" shall have the meaning specified in Section 2.4 hereof.
"Title Insurance Policy" shall mean, with respect to each Property, the
ALTA extended coverage mortgagee title insurance policy (1992 Loan Policy or
other loan policy acceptable to Lender) issued with respect to such Property and
insuring the lien of the Mortgage encumbering such Property and containing such
endorsements and affirmative assurances as Lender shall reasonably require (to
the extent authorized in the State).
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"Total Sale" shall have the meaning specified in Section 2.3 hereof.
"Yield Maintenance" shall mean, with respect to each Loan and the
corresponding Note, the positive excess of (1) the present value ("PV") of all
future installments of principal and interest due under the Note including the
principal amount due at maturity (collectively, "All Future Payments"),
discounted at an interest rate per annum equal to the Treasury Constant Maturity
Yield Index published during the second full week preceding the date for which
the calculation is made for the U.S. Treasury security having a maturity
coterminous with the remaining term of such Note, over (2) the principal amount
of such Loan outstanding immediately before such prepayment [(PV of All Future
Payments) - (principal balance at time of prepayment) = Yield Maintenance].
"Treasury Constant Maturity Yield Index" shall mean the average yield for "This
Week" as reported by the Federal Reserve Board in Federal Reserve Statistical
Release H.15(519). If there is no Treasury Constant Maturity Yield Index for a
U.S. Treasury security having a maturity coterminous with the remaining term of
such Note, then the index shall be equal to the weighted average yield to
maturity of the Treasury Constant Maturity Yield Indices with maturities next
longer and shorter than such remaining average life to maturity, calculated by
averaging (and rounding upward to the nearest whole multiple of 1/100 of 1% per
annum, if the average is not such a multiple) the yields of the relevant
Treasury Constant Maturity Yield Indices (rounded, if necessary, to the nearest
1/100 of 1% with any figure of 1/200 of 1% or above rounded upward).
1.2 Principles of Construction.
All references to sections, schedules and exhibits are to sections,
schedules and exhibits in or to this Agreement unless otherwise specified.
Unless otherwise specified, the words "hereof," "herein" and "hereunder" and
words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement.
Unless otherwise specified, all meanings attributed to defined terms herein
shall be equally applicable to both the singular and plural forms of the terms
so defined. All accounting terms not specifically defined herein shall be
construed in accordance with GAAP, as modified herein.
ARTICLE 2
GENERAL TERMS
2.1 Loan Commitment; Disbursement to Borrower.
2.1.1 The Loans. Subject to and upon the terms and conditions set forth
herein, Lender hereby agrees to make the Loans to Borrower on the Closing Date,
in the Initial Allocated Loan Amounts set forth in the Notes, which Loans shall
mature on the Maturity Date. Borrower hereby agrees to accept the Loans on the
Closing Date, subject to and upon the terms and conditions set forth herein.
2.1.2 The Notes. Each Loan shall be evidenced by a Note in the Initial
Allocated Loan Amount of such Loan. The Loan evidenced by each Note shall bear
interest as provided in such Note, and shall be subject to repayment and
prepayment as provided in such Note and in Section 2.2 hereof. The Loan
<PAGE>
evidenced by each Note shall be entitled to the benefits of this Agreement and
shall be secured by the Mortgages, Assignments of Leases and the other
Collateral Security Documents.
2.2 Loan Repayment/Prepayment.
2.2.1 Loan Repayment. Borrower shall repay each Loan in accordance with the
provisions of the Note evidencing such Loan.
2.2.2 Prepayment.
(a) Except as set forth in Sections 2.2.2(b) and (c) hereof, no prepayment
of the Indebtedness may be made in whole or in part.
(b) With respect to each Loan and each Note evidencing such Loan, the
following prepayment terms and conditions shall apply:
(1) The Loan may be prepaid in whole or in part at any time after the first
(1st) anniversary of the Note provided (i) written notice of such prepayment is
received by Lender not more than sixty (60) days and not less than thirty (30)
days prior to the date of such prepayment, (ii) such prepayment is accompanied
by all unpaid interest accrued thereunder and all other sums then due thereunder
and under the other Loan Documents (including this Agreement), and (iii) if such
prepayment occurs prior to the date that is six (6) months prior to the Maturity
Date, Lender is paid a prepayment fee in an amount equal to the following:
(i) during the period from and including the first (1st) anniversary of the
Note until the date that is nine (9) years and six (6) months after the date of
the Note, the greater of (i) one percent (1.0%) of the principal amount being
prepaid, or, in the event of a Release, one percent (1%) of the then Allocated
Loan Amount for the Property to be Released, or (ii) Yield Maintenance;
(ii) during the period from and including the date that is nine (9) years
and six (6) months after the date of the Note until the date that is ten (10)
years and six (6) months after the date of the Note, five percent (5%) of the
principal amount being prepaid, or, in the event of a Release, five percent (5%)
of the then Allocated Loan Amount for the Property to be Released;
(iii) during the period from and including the date that is ten (10) years
and six (6) months after the date of the Note until the date that is eleven (11)
years and six (6) months after the date of the Note, four percent (4%) of the
principal amount being prepaid, or, in the event of a Release, four percent (4%)
of the then Allocated Loan Amount for the Property to be Released;
(iv) during the period from and including the date that is eleven (11)
years and six (6) months after the date of the Note until the date that is
<PAGE>
twelve (12) years and six (6) months after the date of the Note, three percent
(3%) of the principal amount being prepaid, or, in the event of a Release, three
percent (3%) of the then Allocated Loan Amount for the Property to be Released;
(v) during the period from and including the date that is twelve (12) years
and six (6) months after the date of the Note until the date that is thirteen
(13) years and six (6) months after the date of the Note, two percent (2%) of
the principal amount being prepaid, or, in the event of a Release, two percent
(2%) of the then Allocated Loan Amount for the Property to be Released; and
(vi) during the period from and including the date that is thirteen (13)
years and six (6) months after the date of the Note until the date that is
fourteen (14) years and six (6) months after the date of the Note, one percent
(1%) of the principal amount being prepaid, or, in the event of a Release, one
percent (1%) of the then Allocated Loan Amount for the Property to be Released.
In the event that any prepayment fee is due hereunder, Lender shall deliver
to Borrower a statement setting forth the amount and determination of the
prepayment fee, and, provided that Lender shall have in good faith applied the
formula described above, Borrower shall not have the right to challenge the
calculation or the method of calculation set forth in any such statement in the
absence of manifest error. Lender shall not be obligated or required to have
actually reinvested the prepaid principal balance at the Treasury Constant
Maturity Yield or otherwise as a condition to receiving the prepayment fee. No
prepayment fee or shall be due or payable in connection with any prepayment of
the indebtedness evidenced by the Note, in whole, made on or after the date that
is six (6) months prior to the Maturity Date, or upon prepayment resulting from
application of insurance or condemnation proceeds and any related Borrower's
Contribution as provided in the Mortgage at any time during the Loan term. In
addition to the aforesaid prepayment fee, if, upon any such prepayment (whether
prior to or after the date that is six (6) months prior to the Maturity Date),
the aforesaid prior written notice has not been received by Lender, the
prepayment fee shall be increased by an amount equal to the lesser of (i) thirty
(30) days' unearned interest computed on the outstanding principal balance of
the Note so prepaid and (ii) unearned interest computed on the outstanding
principal balance of the Note so prepaid for the period from, and including, the
date of prepayment through the Maturity Date.
(2) Partial prepayments of the indebtedness evidenced by a Note shall not
be permitted, except partial prepayments resulting from Lender applying
insurance or condemnation proceeds and any related Borrower's Contribution to
reduce the outstanding principal balance of the Loan evidenced by such Note as
provided in the corresponding Mortgage, in which event no prepayment fee shall
be due. No notice of prepayment shall be required under the circumstance
specified in the preceding sentence. No principal amount repaid may be
reborrowed. Partial payments of principal of any Loan shall be applied to the
unpaid principal balance thereof, but such application shall not reduce the
amount of the fixed monthly installments required to be paid pursuant to Section
1.01 of the corresponding Note.
<PAGE>
(3) Except as otherwise expressly provided in Section 2.2.2(b)(2) above,
the prepayment fees provided above shall be due, to the extent permitted by
applicable law, under any and all circumstances where all or any portion of the
Note is paid prior to the Maturity Date, whether such prepayment is voluntary or
involuntary, even if such prepayment results from Lender's exercise of its
rights upon Borrower's default and acceleration of the maturity date of the Note
(irrespective of whether foreclosure proceedings have been commenced), and shall
be in addition to any other sums due hereunder or under any of the other Loan
Documents. No tender of a prepayment of the Note with respect to which a
prepayment fee is due shall be effective unless such prepayment is accompanied
by the prepayment fee. Any tender of prepayment of any Loan made prior to the
first (1st) anniversary of the corresponding Note, whether voluntary or
involuntary (except partial prepayments resulting from Lender applying insurance
or condemnation proceeds to reduce the outstanding principal balance of the Loan
evidenced by such Note as provided in the corresponding Mortgage), must include
a prepayment fee computed as provided in Section 2.2.2(b) above plus an
additional prepayment fee of one percent (1%) of the principal balance of the
Note.
(4) Except in the case of a prepayment resulting from Lender applying
insurance or condemnation proceeds and any related Borrower's Contribution to
the repayment of a Loan in whole, Borrower may not prepay any one Loan in whole
pursuant to this Section 2.2.2(b) without prepaying all Loans in whole.
(c) Notwithstanding anything to the contrary contained in Section 2.2.2(b)
above, Borrower may prepay any Loan(s) in whole in accordance with this Section
2.2.2(c) without prepaying all Loans in whole. If Borrower desires to make a
prepayment pursuant to this Section 2.2.2(c), and sends a notice to Lender
indicating that such prepayment is being made in connection with a release of a
Property from the lien of a Mortgage pursuant to this clause (c) (the "Released
Property"), then, upon the request of Borrower, Lender shall, upon satisfaction
of all the following terms and conditions, execute, acknowledge and deliver to
Borrower a satisfaction of such Mortgage or other reconveyance of the Released
Property in form and substance reasonably satisfactory to Borrower and Lender (a
"Satisfaction"), whereby Lender acknowledges and agrees to release such Released
Property from the lien of such Mortgage (a "Release"):
(1) Lender shall have received in immediately available federal funds on
the date proposed for such prepayment (the "Prepayment Date") any prepayment fee
payable pursuant to clause (b) above, plus an amount equal to one hundred ten
(110%) percent of the then Allocated Loan Amount for the Property to be released
(the "Release Price") accompanied by all unpaid interest accrued under the
Loan(s) being prepaid, which Release Price shall be applied to the repayment of
the Loans as provided in the definition of
<PAGE>
"Allocated Loan Amount";
(2) Either (a) the DSCR for the Property to be released shall be less than
the aggregate DSCR for all of the Properties (excluding the Released Property),
provided that the aggregate DSCR for all of the Properties (excluding the
Released Property) is at least 1.25 or (b) the aggregate DSCR for all of the
Properties (excluding the Released Property) for the twelve (12) month period
immediately prior to such Release is not less than 1.30; provided, however, that
neither this clause (2) nor clauses (3) or (4) below shall be applicable to a
Release obtained by Borrower pursuant to Section 1.9 of a Mortgage, or a Release
in connection with the exercise by Borrower of its cure rights under Section
4.1(g) hereof. Notwithstanding the foregoing, this clause (2) shall be
applicable to a Release in connection with the exercise by Borrower of its cure
rights under Section 4.1(g) hereof if, in Lender's reasonable judgment, Borrower
allowed the Property that is subject to such cure rights to become vacant for
the purpose of obtaining a Release that does not meet the conditions of this
clause (2).
(3) Borrower shall, at its expense, provide all financial and other
information to substantiate Store Sales to Lender's reasonable satisfaction,
including updated sales information as provided herein.
(4) Borrower shall not be permitted to obtain Releases for more than twenty
percent (20%) (rounded up or down to the nearest whole number) of the Properties
in any Fiscal Year (the "Annual Release Limit"); provided, however, that (i) in
any Fiscal Year Borrower shall be permitted a Release of one (1) additional
Property over the Annual Release Limit in connection with the exercise by
Borrower of its cure rights under Section 4.1(g) hereof; provided, that, in
Lender's reasonable judgment, Borrower did not allow the Property that is
subject to such cure rights to become vacant for the purpose of obtaining an
additional Release within such Fiscal Year, and (ii) any Release obtained by
Borrower pursuant to Section 1.9 of a Mortgage shall not be included in the
calculation of the Annual Release Limit.
(5) The Released Property shall be transferred to a Person that is not the
immediate parent of Borrower; provided, however, that title may pass through
such immediate parent to another entity in a series of transfers that occur on
the same day, and Borrower shall provide Lender with evidence reasonably
satisfactory to Lender confirming the foregoing, including, without limitation,
a copy of the deed conveying title to the Released Property, certified to be
true and complete by Borrower, and a certificate of Borrower confirming the
name, address and non-parent status of such ultimate transferee.
(6) Borrower shall, at its sole expense, prepare any and all documents and
instruments necessary to effect the Release, or otherwise reasonably required by
<PAGE>
Lender in connection therewith, all of which shall be subject to the approval of
Lender, and Borrower shall pay all reasonable costs incurred by Lender
(including, but not limited to, attorneys' fees and disbursements, title
endorsements acceptable to Lender insuring that the lien of the mortgages on the
remaining Properties shall continue in effect with first lien priority and shall
be unaffected by the release of such Property, and all other reasonable costs
incurred by Lender in connection with the review, execution and delivery of such
documents and the Release transaction. Without limitation to the foregoing,
Borrower shall deliver or cause to be delivered, at Borrower's sole expense, a
re-affirmation of any guaranty or indemnification delivered to Lender relative
to any Loan, in form and substance satisfactory to Lender.
(7) No Event of Default shall have occurred and be continuing at the time
of the request for the Release or on the Prepayment Date.
(8) Lender shall have received not less than forty-five (45) days' prior
written notice.
2.3 Total Sale. Subject to the terms of this Section 2.3, Lender shall
consent to a one time sale, conveyance or transfer of all of the Properties
(hereinafter, a "Total Sale") to any person or entity provided that each of the
following terms and conditions are satisfied:
(a) Event of Default shall have occurred and be continuing at the time of
the request for the prospective Total Sale or on the date of the Total Sale;
(b) Borrower gives Lender written notice of the terms of such prospective
Total Sale not less than sixty (60) days before the date on which such Total
Sale is scheduled to close and, concurrently therewith, gives Lender all such
information concerning the proposed transferee of the Properties (hereinafter,
"Buyer") as Lender would require in evaluating an initial extension of credit to
a borrower and pays to Lender a non-refundable application fee in the amount of
$5,000.00. Lender, acting in good faith, shall have the right to approve or
disapprove the proposed Buyer. In determining whether to give or withhold its
approval of the proposed Buyer, Lender shall consider Buyer's experience and
track record in owning and operating facilities similar to the Properties,
Buyer's entity structure, Buyer's financial strength, Buyer's general business
standing and Buyer's relationships and experience with contractors, vendors,
tenants, lenders and other business entities; provided, however, that,
notwithstanding Lender's agreement to consider the foregoing factors in
determining whether to give or withhold such approval, such approval shall be
given or withheld based on what Lender in good faith determines to be
commercially reasonable in Lender's sole discretion and, if given, may be given
subject to such conditions as Lender may in good faith deem appropriate;
(c) Borrower pays Lender, concurrently with the closing of such Total Sale,
all out-of- pocket costs and expenses, including, without limitation, attorneys'
fees, reasonably incurred by Lender in connection with the Total Sale plus a
<PAGE>
non-refundable assumption fee equal to one percent (1.0%) of the then
outstanding aggregate principal balance of the then Allocated Loan Amount for
the Properties;
(d) Buyer assumes and agrees to pay the Indebtedness subject to the
provisions of Section 5.16 hereof and, prior to or concurrently with the closing
of such Total Sale, Buyer executes, without any cost or expense to Lender,
including, without limitation, attorneys' fees, such documents and agreements as
Lender shall reasonably require to evidence and effectuate said assumption and
delivers such legal opinions as Lender may reasonably require;
(e) Borrower and Buyer execute, without any cost or expense to Lender,
including, without limitation attorneys' fees, new financing statements or
financing statement amendments and any additional documents as may be reasonably
requested by Lender;
(f) Buyer and Lender execute, without any cost or expense to Lender,
including without limitation attorneys' fees, such amendments to the Loan
Documents and any additional documents as may be reasonably requested by Lender.
(g) Borrower shall cause to be delivered to Lender, without any cost or
expense to Lender, including without limitation attorneys' fees, such
endorsements to Lender's title insurance policy, hazard insurance endorsements
or certificates and other similar materials as Lender may reasonably deem
necessary at the time of the Total Sale, all in form and substance reasonably
satisfactory to Lender, including, without limitation, an endorsement or
endorsements to Lender's title insurance policy insuring the liens of the
Mortgages, extending the effective date of such policy to the date of execution
and delivery (or, if later, of recording) of the assumption agreement referenced
above in subparagraph (4) of this Section with no additional exceptions added to
such policy and insuring that fee simple title to the Properties is vested in
Buyer;
(h) Borrower executes and delivers to Lender, without any cost or expense
to Lender, including, without limitation, attorneys' fees, a release of Lender,
its officers, directors, employees and agents, from all claims and liability
relating to the transactions evidenced by the Loan Documents through and
including the date of the closing of the Total Sale, which agreement shall be in
form and substance reasonably satisfactory to Lender and shall be binding upon
Borrower and Buyer;
(i) Such Total Sale is not construed so as to relieve any current guarantor
or indemnitor of its obligations under any guaranty or indemnity agreement
executed in connection with the Loans and each such current guarantor and
indemnitor executes, without any cost or expense to Lender, including, without
limitation, attorneys' fees, such documents and agreements as Lender shall
reasonably require to evidence and effectuate the ratification of each such
guaranty and indemnity agreement, provided that if Buyer or a party associated
with Buyer in good faith approved by Lender in its sole discretion assumes the
obligations of the current guarantor or indemnitor under its guaranty or
indemnity agreement and Buyer or such party associated with Buyer, as
applicable, executes, without any cost or expense to Lender, including, without
limitation, attorneys' fees, a new guaranty or indemnity agreement in form and
substance satisfactory to Lender, then Lender shall release the current
<PAGE>
guarantor or indemnitor from all obligations arising under its guaranty or
indemnity agreement after the closing of such Total Sale;
(j) Subject to the provisions of Section 5.16 hereof, such Total Sale is
not construed so as to relieve Borrower of any personal liability under this
Agreement or any of the other Loan Documents for any acts or events occurring or
obligations arising prior to or simultaneously with the closing of such Total
Sale and Borrower executes, at Borrower's sole cost and expense, such documents
and agreements as Lender shall reasonably require to evidence and effectuate the
ratification of said personal liability;
(k) Buyer shall furnish, if Buyer is a corporation, partnership or other
entity, all appropriate papers evidencing Buyer's capacity and good standing,
and the qualification of the signers to execute the assumption of the
Indebtedness, which papers shall include certified copies of all documents
relating to the organization and formation of Buyer and of the entities, if any,
which are partners of Buyer. Buyer and such constituent partners, members or
shareholders of Buyer (as the case may be), as Lender shall require, shall be a
single purpose entity, whose formation documents shall be approved by counsel to
Lender;
(l) Buyer shall assume the obligations of Borrower under any management
agreements pertaining to the Properties;
(m) Buyer shall furnish an opinion of counsel reasonably satisfactory to
Lender and its counsel (i) that Buyer's formation documents provide for the
matters described in subparagraph (11) of this Section, (ii) that the assumption
of the Indebtedness has been duly authorized, executed and delivered, and that
the Loan Documents are valid, binding and enforceable against Buyer in
accordance with their terms, (iii) that Buyer and any entity that is a
controlling stockholder or general partner of Buyer, have been duly organized,
and are in existence and good standing, and (v) with respect to such other
matters, as Lender may request; and
(n) Lender shall have received evidence in writing from the Rating Agencies
to the effect that the proposed transfer will not result in a re-qualification,
reduction or withdrawal of any rating initially assigned or to be assigned in a
Secondary Market Transaction. For purposes hereof, a "Secondary Market
Transaction" shall be (a) any sale of a Mortgage or Mortgages, a Note or Notes
and other applicable Loan Documents to one or more investors as a whole loan;
(b) a participation of a Loan or Loans to one or more investors, (c) any deposit
of a Mortgage or Mortgages, a Note or Notes and other applicable Loan Documents
with a trust or other entity that may sell certificates or other instruments to
investors evidencing an ownership interest in the assets of such trust or other
entity, or (d) any other sale or transfer of a Loan or any interest therein to
one or more investors.
2.4 Transfer of Individual Property. Lender shall consent to a one time
sale, conveyance or transfer of an individual Property encumbered by a Mortgage
subject to, and in accordance with, the terms, provisions and conditions of
Section 1.13(c) of the applicable Mortgage.
2.5 Substitution of a Property. Subject to the terms of this Section 2.5,
Borrower may substitute for a Property (the "Substituted Property") a property
that is not encumbered by a Mortgage (the "Substitution Property") to serve as
<PAGE>
the collateral for the applicable Loan (a "Substitution") provided that each of
the following terms and conditions are satisfied:
(a) No Event of Default shall have occurred and be continuing at the time
of the request for the proposed Substitution or on the date of the Substitution;
(b) Such Substitution shall only be permitted prior to the date that is
ninety (90) days after the date on which an election to treat the Loan that is
secured by such Property, along with other assets, if any, as a REMIC (such
assets pool, the "REMIC Trust") is made (the "Startup Date"); provided, however,
that such ninety (90) day period is based on the REMIC Provisions in effect as
of the date hereof, and is subject to adjustment by Lender based upon any
changes to such REMIC Provisions. The Substitution must be acceptable to (i)
Lender, if prior to the Startup Date, or (ii) any assignee of Lender and the
then current servicer of such Loan, if subsequent to the Startup Date (either,
the "Approving Party"), as well as the Rating Agencies, which approval shall
include consideration of, but not be limited to, the appraised value of the
proposed Substitution Property (which shall be at least equal to the appraised
value of the Substituted Property as of the date hereof), the type and location
of the proposed Substitution Property, and the operating income and Store Sales
of the proposed Substitution Property (which shall be at least equal to the
operating income and the Store Sales of the Substituted Property as of the date
hereof). Without limiting the generality of the foregoing, Borrower must satisfy
the following conditions:
(1) Borrower shall provide to the Approving Party written notice of the
terms of such prospective Substitution not less than sixty (60) days before the
date on which such Substitution is scheduled to be effected, together with (x)
all such information concerning the proposed Substitution Property as Lender
would require in evaluating an initial extension of credit to a borrower to be
secured by such Substitution Property and as may be required by the Approving
Party and (y) payment of a non-refundable application fee in the amount of
$5,000.00. The Approving Party shall have the right to approve or disapprove the
proposed Substitution Property; provided, however, that, such approval shall be
given or withheld based on what the Approving Party in good faith determines to
be commercially reasonable in the Approving Party's sole discretion and, if
given, may be given subject to such conditions as the Approving Party in good
faith may deem appropriate;
(2) Borrower pays to the Approving Party, concurrently with the effecting
of such Substitution, a non-refundable assumption fee in an amount equal to all
out- of-pocket costs and expenses, including, without limitation, attorneys'
fees, reasonably incurred by such Approving Party in connection with the
Substitution;
(3) Borrower executes and delivers, without any cost or expense to the
Approving Party, including, without limitation, attorneys' fees, a Mortgage,
Assignment of Leases and Rents, financing statements and any additional loan
documents as the Approving Party in good faith may, in its sole discretion, deem
necessary or expedient, including amendments and ratifications to the
<PAGE>
Environmental Indemnity and the Indemnity and such amendments to the other Loan
Documents as the Approving Party may reasonably require, all in form and
substance reasonably satisfactory to the Approving Party;
(4) Borrower shall cause to be delivered to the Approving Party, without
any cost or expense to the Approving Party, including without limitation,
attorneys' fees, an ALTA title insurance policy, with any endorsements the
Approving Party in good faith may require in its sole discretion, insuring the
Approving Party, in an amount at least equal to the Allocated Loan Amount to be
secured by the Substitution Property, which policy shall provide that the
Mortgage constitutes a first lien or charge upon the Substitution Property
subject only to such items as shall have been approved in writing by the
Approving Party and its attorneys;
(5) Borrower shall cause to be delivered to the Approving Party hazard
insurance endorsements or certificates and other similar materials as the
Approving Party may reasonably deem necessary at the time of the Substitution,
all in form and substance reasonably satisfactory to the Approving Party;
(6) Borrower shall cause to be delivered to the Approving Party all
documents and information required by the Conditional Commitment with respect to
the Approving Party's review and approval of a Substitution Property and
Borrower shall comply with all conditions with respect to a Property set forth
in the Conditional Commitment;
(7) Borrower executes and delivers to the Approving Party, without any cost
or expense to the Approving Party, including, without limitation, attorneys'
fees, a release of the Approving Party, its officers, directors, employees and
agents, from all claims and liability relating to the transactions evidenced by
the Substituted Property through and including the date of the effecting of the
Substitution, which agreement shall be in form and substance reasonably
satisfactory to the Approving Party and shall be binding upon Borrower;
(8) Borrower shall furnish an opinion of counsel reasonably satisfactory to
the Approving Party and its counsel to the effect that (i) the Substitution does
not violate any, and is in compliance with all, REMIC Provisions, will not
endanger the status of the REMIC Trust as a REMIC, or result in the imposition
of a tax upon the REMIC Trust (including, but not limited to, the tax on
prohibited transactions as defined in Section 860F(a)(2) of the Code and the tax
on contributions to a REMIC set forth in Section 860G(d) of the Code), (ii) that
Borrower's formation documents provide for the Substitution, (iii) that the
Substitution has been duly authorized, executed and delivered, and that the Loan
Documents (including, without limitation, any amendments thereto or any new Loan
Documents executed in connection with the Substitution) are valid, binding and
enforceable against Borrower in accordance with their terms, (iv) that Borrower
and any entity that is a controlling stockholder of Borrower, have been duly
organized, and are in existence and good standing, and (v) with respect to such
other matters as the Approving Party may request;
<PAGE>
(9) The Approving Party shall have received evidence in writing from the
Rating Agencies to the effect that the proposed Substitution will not result in
a re-qualification, reduction or withdrawal of any rating initially assigned or
to be assigned in a Secondary Market Transaction;
(10) Such Substitution is not construed so as to relieve any current
guarantor or indemnitor of its obligations under any guaranty or indemnity
agreement executed in connection with the Loans; and
(11) Subject to the provisions of Section 5.16 hereof, such Substitution is
not construed so as to relieve Borrower of any personal liability under this
Agreement or any of the other Loan Documents for any acts or events occurring or
obligations arising prior to or simultaneously with the effecting of such
Substitution and Borrower executes, at Borrower's sole cost and expense, such
documents and agreements as the Approving Party shall reasonably require to
evidence and effectuate the ratification of said personal liability.
2.6 TI Reserve.
(a) As additional security for the Loan, on the date hereof Borrower has
established, and Borrower shall maintain at all times while any portion of the
Loan remains outstanding, a TI Costs reserve (the "TI Reserve") with Lender for
payment of TI Costs in the amount of One Million One Hundred Seventy-Five
Thousand and 00/100 Dollars ($1,175,000.00), which amount shall be reduced
proportionately with reductions in the Indebtedness upon the transfer or Release
of a Property in accordance with the terms of the this Agreement and the other
Loan Documents. Borrower hereby agrees to pay all TI Costs with respect to each
Property (without regard to the amount of money then available in the TI
Reserve). So long as no Event of Default hereunder or under the other Loan
Documents has occurred and is continuing, all sums in the TI Reserve shall be
held by Lender to pay TI Costs. Provided that (i) Lender has received written
notice from Borrower requesting funds from the TI Reserve at least ten (10)
Business Days prior to the due date of any requested disbursement relating to TI
Costs, or if Borrower makes timely payment therefor, not more than forty-five
(45) days after Borrower has made such payment, (ii) no Event of Default has
occurred and is continuing, (iii) Borrower furnishes Lender with a written
disbursement request for the payment or reimbursement of such TI Costs, not more
frequently than once every ninety (90) day period, (iv) there are sufficient
funds available in the TI Reserve with respect to Borrower's disbursement
request, (v) Borrower shall have theretofore complied with the requirements of
the Mortgages relative to (1) new leases, licenses and/or occupancy agreements
with respect to the Properties and (2) the performance of improvements and
alterations to the Properties, (vi) Borrower shall have theretofore furnished
Lender with reasonably satisfactory evidence of the progress and/or completion
of tenant improvement work, the cost of tenant improvement work, reasonably
satisfactory evidence that any and all completed tenant improvement work
complies with law, lien waivers for lienable work, copies of bills, invoices and
other reasonable documentation as may be required by Lender to substantiate the
use of such funds and establish that the TI Costs that are the subject of such
disbursement request represent completed or partially completed tenant
improvement work performed at all or any portion of the Property, and (vii)
<PAGE>
Borrower has replenished the TI Reserve in the amount of any previous
withdrawals therefrom in accordance with this Section, then Lender shall make
such payments out of the TI Reserve. In making any payment from the TI Reserve,
Lender shall be entitled to rely on such request from Borrower without any
inquiry into the accuracy, validity or contestability of any such amount.
Borrower shall deposit the amount of any funds withdrawn from the TI Reserve
within ten (10) days after the date of such withdrawal. The TI Reserve shall
not, unless otherwise explicitly required by applicable law, be or be deemed to
be escrow or trust funds, but, at Lender's option and in Lender's discretion,
may either be held in a separate account or be commingled by Lender with the
general funds of Lender. Interest on the funds contained in the TI Reserve shall
be credited to Borrower. The TI Reserve is solely for the protection of Lender
and entails no responsibility on Lender's part beyond the payment of the costs
and expenses described in this Section in accordance with the terms hereof and
beyond the allowing of due credit for the sums actually received. In the event
that the amounts on deposit or available in the TI Reserve are inadequate to pay
the TI Costs, Borrower shall pay the amount of such deficiency. Upon assignment
of this Agreement by Lender, any funds in the TI Reserve shall be turned over to
the assignee and any responsibility of Lender, as assignor, with respect thereto
shall terminate. If there is an Event of Default under this Agreement, Lender
may, but shall not be obligated to, apply at any time the balance then remaining
in the TI Reserve against the indebtedness secured by the Mortgages in whatever
order Lender shall subjectively determine. No such application of the TI Reserve
shall be deemed to cure any default hereunder.
(b) At Borrower's option, the TI Reserve can be deposited with Lender in
the form of a letter of credit (a "Letter of Credit"). The Letter of Credit
shall be unconditional and irrevocable, issued by a commercial bank having a
rating of "AA" or higher by Moody's Investors Services, Inc. and Standard and
Poors Corporation at the time of issuance, the letter of credit payment window
of which bank is located in New York County, New York and otherwise satisfactory
to Lender in its sole discretion. The Letter of Credit shall be payable (x) to
Lender upon presentation solely of a sight draft stating that an event under
this Agreement has occurred that entitles Lender to such draw and (y) in
multiple drafts. The Letter of Credit shall be for a period expiring not earlier
than one (1) year after the date of delivery of the Letter of Credit to Lender.
The Letter of Credit shall be replaced not less than thirty (30) days prior to
the expiration date of the Letter of Credit. If Borrower fails to replace timely
the Letter of Credit with either (i) a cash deposit meeting the requirements of
Section 2.6(a), or (ii) a new Letter of Credit meeting the requirements of this
clause (b), Lender may draw on the then expiring Letter of Credit and apply all
or any portion of the proceeds therefrom to (x) the indebtedness secured by the
Mortgages or (y) the funding of the TI Reserve, in Lender's sole discretion.
Otherwise, Lender may draw upon the Letter of Credit only in respect of any
amount that Lender would be entitled to use, apply or retain the proceeds of the
TI Reserve under this Section.
(c) In the event that the Letter of Credit bank shall at any time cease to
have a long-term rating of at least "A" or higher by any one of the Rating
agencies, Borrower shall, within five (5) Business Days after notice of the
occurrence of such event, replace the Letter of Credit with either (i) a cash
deposit meeting the requirements of Section 2.6(a), or (ii) a letter of credit
(the "Replacement Letter of Credit") issued by a commercial bank having a
long-term rating of "AA" or higher by Moody's Investors Services, Inc. and
Standard and Poors Corporation, the letter of credit window of which bank is
located in New York County, New York and otherwise satisfactory to Lender in its
<PAGE>
sole discretion. Simultaneously with the furnishing of such Replacement Letter
of Credit, Lender shall surrender to Borrower the Letter of Credit which is
being replaced and thereupon the Replacement Letter of Credit shall be deemed to
be the Letter of Credit for all purposes of this Agreement. If Borrower shall
fail to furnish such Replacement Letter of Credit within such five (5) Business
Day period, Lender may draw upon the then Letter of Credit and apply all or any
portion of the proceeds therefrom to (x) the indebtedness secured by the
Mortgages or (y) the funding of the TI Reserve, in Lender's sole discretion.
(d) Upon the full repayment of the Loans, the unexpended portion of the TI
Reserve (including any corresponding Letter(s) of Credit) shall be returned to
Borrower.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Borrower's Representations. The representations and warranties of
Borrower set forth in the Mortgages are hereby incorporated herein in full.
3.2 Survival of Representations. Borrower agrees that all of the
representations and warranties of Borrower incorporated in Section 3.1 and
elsewhere in this Agreement and in the other Loan Documents shall survive for so
long as any amount remains owing to Lender under the Notes, the Mortgages, this
Agreement or any of the other Loan Documents. All representations, warranties,
covenants and agreements made in this Agreement or in the other Loan Documents
by Borrower shall be deemed to have been relied upon by Lender notwithstanding
any investigation heretofore or hereafter made by Lender or on its behalf.
ARTICLE 4
DEFAULTS
4.1 Event of Default. Each of the following events occurring with respect
to Borrower, or any Property shall constitute an "Event of Default" hereunder:
(a) if Borrower fails to punctually perform any covenant, agreement,
obligation, term or condition hereof that requires payment of any money to
Lender (except those regarding payments to be made under the Notes, which
failure is subject to any grace periods set forth in the Notes) for ten (10)
days after written notice thereof from Lender to Borrower.
(b) if Borrower fails to perform any other covenant, agreement, obligation,
term or condition set forth herein other than those otherwise described
elsewhere in this Section 4.1 and, to the extent such failure or default is
susceptible of being cured, the continuance of such failure or default for
thirty (30) days after written notice thereof from Lender to Borrower; provided,
however, that, if such default is susceptible of cure but such cure cannot be
accomplished with reasonable diligence within said period of time, and if
Borrower commences to cure such default promptly after receipt of notice thereof
from Lender, and thereafter prosecutes the curing of such default with
reasonable diligence, such period of time shall be extended for such period of
time as may be necessary to cure such default with reasonable diligence, but not
to exceed an additional ninety (90) days (the "Additional Cure Period");
<PAGE>
provided, further, that if such default is susceptible of cure but such cure
cannot be accomplished with reasonable diligence within said Additional Cure
Period and Borrower notifies Lender not later than ten (10) days prior to the
end of such Additional Cure Period of its intention to continue to cure such
default with all due diligence and thereafter continuously prosecutes the curing
of such default with all due diligence, such Additional Cure Period shall be
extended for such period of time as may be necessary to cure such default with
all due diligence, but not to exceed an additional sixty (60) days.
(c) if any representation or warranty made herein, in or in connection with
any application or commitment relating to the Loans, or in any of the other Loan
Documents to Lender by Borrower or by any indemnitor or guarantor under any
indemnity or guaranty executed in connection with the Loans is determined by
Lender to have been false or misleading in any material respect at the time
made.
(d) if a default occurs under any of the other Loan Documents that is not
cured within any applicable grace or cure period therein provided.
(e) if Borrower attempts to (i) assign its respective rights under this
Agreement or any of the other Loan Documents or any interest herein or therein
or (ii) transfer the Properties or any interest therein, in either case in
contravention of the Loan Documents.
(f) if greater than twenty percent (20%) (rounded up or down to the nearest
whole number) of the Properties at any one time are each two-thirds (2/3) or
more vacant for a period of six (6) consecutive months excluding any periods of
time during which restorations, alterations or improvements are being diligently
performed on any such Properties either following any casualty or condemnation
or as otherwise permitted under the Loan Documents.
(g) if (i) a Property becomes vacant, (ii) as a result thereof, a
termination option and/or purchase option is exercised by the counterparty to a
ground lease, reciprocal easement agreement or other agreement affecting
Borrower's right to occupy and operate such Property, and (iii) prior to the
earlier to occur of (i) thirty (30) days thereafter or (2) the date that such
termination or purchase, as applicable, becomes effective, Borrower fails to
effect the Release of such Property pursuant to Section 2.2.2(c) hereof;
provided, however, that Borrower shall not have the right to effect such a
Release prior to the first (1st) anniversary of the applicable Note.
4.2 Remedies.
(a) Upon the occurrence of an Event of Default, all or any one or more of
the rights, powers, privileges and other remedies available to Lender against
Borrower under this Agreement or any of the other Loan Documents or at law or in
equity may be exercised by Lender at any time and from time to time, whether or
not all or any of the Indebtedness shall be declared due and payable, and
whether or not Lender shall have commenced any foreclosure proceeding or other
action for the enforcement of its rights and remedies under any of the Loan
Documents with respect to the Properties. Any such actions taken by Lender shall
be cumulative and concurrent and may be pursued independently, singly,
successively, together or otherwise, at such time and in such order as Lender
<PAGE>
may determine in its sole discretion, to the fullest extent permitted by law,
without impairing or otherwise affecting the other rights and remedies of Lender
permitted by law, equity or contract or as set forth herein or in the other Loan
Documents.
(b) The rights, powers and remedies of Lender under this Agreement shall be
cumulative and not exclusive of any other right, power or remedy which Lender
may have against Borrower pursuant to this Agreement or the other Loan
Documents, or existing at law or in equity or otherwise. Lender's rights, powers
and remedies may be pursued singly, concurrently or otherwise, at such time and
in such order as Lender may determine in Lender's sole discretion. No delay or
omission to exercise any remedy, right or power accruing upon an Event of
Default shall impair any such remedy, right or power or shall be construed as a
waiver thereof, but any such remedy, right or power may be exercised from time
to time and as often as may be deemed expedient. A waiver of one default or
Event of Default with respect to Borrower shall not be construed to be a waiver
with respect to any subsequent default or Event of Default by Borrower, or to
impair any remedy, right or power consequent thereon.
ARTICLE 5
MISCELLANEOUS
5.1 Survival. This Agreement and all covenants, agreements, representations
and warranties made herein and in the certificates delivered pursuant hereto
shall survive the making by Lender of the Loans and the execution and delivery
to Lender of the Notes, and shall continue in full force and effect so long as
all or any of the Indebtedness is outstanding and unpaid.
5.2 Lender's Discretion. Whenever pursuant to this Agreement Lender
exercises any right given to it to approve or disapprove, or any arrangement or
term is to be satisfactory to Lender, the decision of Lender to approve or
disapprove or to decide whether arrangements or terms are satisfactory or not
satisfactory shall (except as is otherwise specifically herein provided) be in
the sole discretion of Lender and shall be final and conclusive.
5.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina, provided that to the
extent that any of such laws may now or hereafter be preempted by Federal law,
such Federal law shall so govern and be controlling.
5.4 Modification; Waiver in Writing. Lender may waive any single default by
Borrower hereunder without waiving any other prior or subsequent default. Lender
may remedy any default by Borrower hereunder without waiving the default
remedied. Neither the failure by Lender to exercise, nor the delay by Lender in
exercising, any right, power or remedy upon any default by Borrower hereunder
shall be construed as a waiver of such default or as a waiver of the right to
exercise any such right, power or remedy at a later date. No single or partial
exercise by Lender of any right, power or remedy hereunder shall exhaust the
same or shall preclude any other or further exercise thereof, and every such
right, power or remedy hereunder may be exercised at any time and from time to
time. No modification or waiver of any provision hereof nor consent to any
departure by Borrower therefrom shall in any event be effective unless the same
shall be in writing and signed by Lender, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose given.
<PAGE>
No notice to nor demand on Borrower in any case shall of itself entitle Borrower
to any other or further notice or demand in similar or other circumstances
unless otherwise expressly provided herein. Acceptance by Lender of any payment
in an amount less than the amount then due on any of the Indebtedness shall be
deemed an acceptance on account only and shall not in any way affect the
existence of a default hereunder. In case Lender shall have proceeded to invoke
any right, remedy or recourse permitted hereunder or under the other Loan
Documents and shall thereafter elect to discontinue or abandon the same for any
reason, Lender shall have the unqualified right to do so and, in such an event,
Borrower and Lender shall be restored to their former positions with respect to
the Indebtedness, the Loan Documents, the Properties and otherwise, and the
rights, remedies, recourses and powers of Lender shall continue as if the same
had never been invoked.
5.5 Notices. All notices, demands, requests or other communications to be
sent by one party to the other hereunder or required by law shall be in writing
and shall be deemed to have been validly given or served by delivery of the same
in person to the intended addressee, or by depositing the same with Federal
Express or another reputable private courier service for next Business Day
delivery, or by depositing the same in the United States mail, postage prepaid,
registered or certified mail, return receipt requested, in any event addressed
to the intended addressee at its address set forth on the first page of this
Agreement or at such other address as may be designated by such party as herein
provided. All notices, demands and requests to be sent to Lender shall be
addressed to the attention of the Capital Markets Group. All notices, demands
and requests shall be effective upon such personal delivery, or one (1) Business
Day after being deposited with the private courier service, or two (2) Business
Days after being deposited in the United States mail as required above.
Rejection or other refusal to accept or the inability to deliver because of
changed address of which no notice was given as herein required shall be deemed
to be receipt of the notice, demand or request sent. By giving to the other
party hereto at least fifteen (15) days' prior written notice thereof in
accordance with the provisions hereof, the parties hereto shall have the right
from time to time to change their respective addresses and each shall have the
right to specify as its address any other address within the United States of
America.
ARTICLE 6
SUBMISSION TO JURISDICTION; WAIVER OF JURY TRIAL
(a) BORROWER AND LENDER EACH, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, (i) SUBMITS TO PERSONAL JURISDICTION
IN THE STATE OF NORTH CAROLINA OVER ANY SUIT, ACTION OR PROCEEDING BY ANY PERSON
ARISING FROM OR RELATING TO THE NOTE, THIS AGREEMENT OR ANY OTHER OF THE LOAN
DOCUMENTS, (ii) AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY BE BROUGHT
IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN MECKLENBURG
COUNTY, NORTH CAROLINA, AND (iii) SUBMITS TO THE JURISDICTION OF SUCH COURTS.
BORROWER AND LENDER EACH FURTHER CONSENTS AND AGREES TO SERVICE OF ANY SUMMONS,
COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR PROCEEDING BY
REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO BORROWER OR LENDER, AS
THE CASE MAY BE, AT THE ADDRESS FOR NOTICES DESCRIBED IN SECTION 5.5 HEREOF, AND
CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY RESPECT VALID
<PAGE>
AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE VALIDITY OR
EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY LAW).
(b) BORROWER AND LENDER EACH, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WAIVES, RELINQUISHES AND FOREVER
FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO THE INDEBTEDNESS OR ANY CONDUCT, ACT
OR OMISSION OF LENDER OR BORROWER, OR ANY OF THEIR DIRECTORS, OFFICERS,
PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS
AFFILIATED WITH LENDER OR BORROWER, IN EACH OR THE FOREGOING CASES, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE.
6.1 Headings. The Article and/or Section headings and the Table of Contents
in this Agreement are included herein for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose.
6.2 Successors and Assigns; Assignment. The terms, provisions, indemnities,
covenants and conditions hereof shall be binding upon and inure to the benefit
of Borrower and the successors and assigns of Borrower, including all successors
in interest of Borrower in and to all or any part of the Properties, and shall
be binding upon and inure to the benefit of Lender, its directors, officers,
shareholders, employees and agents and their respective successors and assigns.
All references in this Agreement to Borrower or Lender shall be deemed to
include all such parties' successors and assigns, and the term "Lender" as used
herein shall also mean and refer to any lawful holder or owner, including
pledgees and participants, of any of the Indebtedness. If Borrower consists of
more than one person or entity, each will be jointly and severally liable to
perform the obligations of Borrower.
6.3 Severability. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
6.4 Expenses; Indemnity. Borrower covenants and agrees to reimburse Lender
upon receipt of written notice from Lender for all reasonable out-of-pocket
costs and expenses (including reasonable attorneys' fees and disbursements)
incurred by Lender in connection with (i) the negotiation, preparation,
execution, delivery and administration of any consents, amendments, waivers or
other modifications to this Agreement and/or the other Loan Documents and any
other documents or matters requested by Borrower; (ii) enforcing or preserving
any rights, in response to third party claims or the prosecuting or defending of
any action or proceeding or other litigation, in each case against, under or
affecting Borrower, this Agreement, the other Loan Documents, the Properties, or
any other security given for the Loans; and (iii) enforcing any obligations of
or collecting any payments due from Borrower under this Agreement, the other
Loan Documents or with respect to the Properties or in connection with any
refinancing or restructuring of the credit arrangement provided under this
<PAGE>
Agreement in the nature of a "work-out" or of any insolvency or bankruptcy
proceedings; provided, however, that Borrower shall not be liable for the
payment of any such costs and expenses to the extent the same arise by reason of
the gross negligence, illegal acts, fraud or willful misconduct of Lender.
6.5 Exhibits Incorporated. The Exhibits and Schedules annexed hereto are
hereby incorporated herein as a part of this Agreement with the same effect as
if set forth in the body hereof.
6.6 No Joint Venture or Partnership. The relationship between Borrower and
Lender is that of a borrower and a lender only and neither of those parties is,
nor shall it hold itself out to be, the agent, employee, joint venturer or
partner of the other party.
6.7 Borrower's Waivers. Borrower hereby waives the right to assert a
counterclaim, other than a compulsory counterclaim, in any action or proceeding
brought against it by Lender or its agents.
6.8 Construction of Documents. The parties hereto acknowledge that they
were represented by counsel in connection with the negotiation and drafting of
this Agreement and the other Loan Documents and that this Agreement and such
Loan Documents shall not be subject to the principle of construing their meaning
against the party which drafted same.
6.9 Prior Agreements. This Agreement and the other Loan Documents contain
the entire agreements between the parties relating to the subject matter hereof
and thereof and all prior agreements relative hereto and thereto that are not
contained herein or therein are terminated. This Agreement and the other Loan
Documents may not be amended, revised, waived, discharged, released or
terminated orally but only by a written instrument or instruments executed by
the party against which enforcement of the amendment, revision, waiver,
discharge, release or termination is asserted. Any alleged amendment, revision,
waiver, discharge, release or termination which is not so documented shall not
be effective as to any party.
6.10 Exculpation. Notwithstanding anything to the contrary contained in
this Agreement, the liability of Borrower for the Indebtedness and for the
performance of the other agreements, covenants and obligations contained herein
and in the other Loan Documents shall be limited as set forth in Section 1.05 of
the Notes, which Section is incorporated herein by reference as fully as if set
forth herein at length; provided, however, that nothing herein shall be deemed
to be a waiver of any right that Lender may have under Sections 506(a), 506(b),
1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for
the full amount of the Indebtedness in any bankruptcy proceeding in which
Borrower is a debtor or to require that all collateral shall continue to secure
all Indebtedness owing to Lender in accordance with this Agreement, the Notes,
the Mortgages and the other Loan Documents.
6.11 Maximum Interest. The provisions of this Agreement and of all
agreements between Borrower and Lender, whether now existing or hereafter
arising and whether written or oral, are hereby expressly limited so that in no
contingency or event whatsoever, whether by reason of demand or acceleration of
the maturity of the Notes or otherwise, shall the amount paid, or agreed to be
<PAGE>
paid, regardless of how denominated (herein "Interest"), to Lender for or in
respect of the use, forbearance or retention of the money loaned under the Notes
exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, performance or fulfillment of any provision hereof or
of any agreement between Borrower and Lender shall, at the time performance or
fulfillment of such provision shall be due, exceed the limit for Interest
prescribed by law or otherwise transcend the limit of validity prescribed by
applicable law, then ipso facto the obligation to be performed or fulfilled
shall be reduced to such limit, and if, from any circumstance whatsoever, Lender
shall ever receive anything of value deemed Interest by applicable law in excess
of the maximum lawful amount, an amount equal to any excessive Interest shall be
applied to the reduction of the principal balance owing under the applicable
Note in the inverse order of its maturity (whether or not then due) or at the
option of Lender be paid over to Borrower, and not to the payment of Interest.
To the fullest extent permitted by applicable law, all Interest (including any
amounts or payments deemed to be Interest) paid or agreed to be paid to Lender
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full period until payment in full of the
principal balance of the applicable Note so that the Interest thereon for such
full period will not exceed the maximum amount permitted by applicable law. This
Section will control all agreements between Borrower and Lender.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized representatives, all as of the day and
year first above written.
LENDER:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/
----------------------------
Name:
----------------------------
Title:
----------------------------
BORROWER:
SMC-SPE-1, a Delaware corporation,
By: /s/ Wade Smith
----------------------------
Name: Wade Smith
----------------------------
Title: Vice President
----------------------------
<PAGE>
EXHIBIT A
---------
INITIAL ALLOCATED LOAN AMOUNTS
Store #316 = $2,810,000.00
Store #202 = $2,848,000.00
Store #452 = $2,810,000.00
Store #343 = $2,773,000.00
Store #309 = $2,698,000.00
Store #441 = $2,735,000.00
Store #214 = $2,286,000.00
Store #532 = $2,660,000.00
Store #389 = $2,848,000.00
Store #190 = $2,398,000.00
Store #259 = $2,735,000.00
Store #359 = $2,885,000.00
Store #353 = $3,110,000.00
Store #042 = $2,585,000.00
Store #276 = $3,073,000.00
Store #277 = $2,623,000.00
Store #360 = $3,447,000.00
Store #348 = $3,220,000.00
Store #440 = $2,286,000.00
LOAN AGREEMENT
Dated as of October 4, 1996
by and between
SMC-SPE-2, INC., a Delaware corporation,
as Borrower
and
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
a national banking association,
as Lender
1
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C>
ARTICLE 1
DEFINITIONS..............................................................................................1
1.1 Definitions.....................................................................................1
1.2 Principles of Construction......................................................................8
ARTICLE 2
GENERAL TERMS............................................................................................8
2.1 Loan Commitment; Disbursement to Borrower.......................................................8
2.1.1 The Loans..............................................................................8
2.1.2 The Notes..............................................................................8
2.2 Loan Repayment/Prepayment.......................................................................9
2.2.1 Loan Repayment.........................................................................9
2.2.2 Prepayment.............................................................................9
2.3 Total Sale.....................................................................................13
2.4 Transfer of Individual Property................................................................16
2.5 Substitution of a Property.....................................................................16
2.6 TI Reserve.....................................................................................19
ARTICLE 3
REPRESENTATIONS AND WARRANTIES..........................................................................20
3.1 Borrower's Representations.....................................................................20
3.2 Survival of Representations....................................................................20
ARTICLE 4 DEFAULTS...............................................................................................21
4.1 Event of Default...............................................................................21
4.2 Remedies.......................................................................................22
ARTICLE 5
MISCELLANEOUS...........................................................................................22
5.1 Survival.......................................................................................22
5.2 Lender's Discretion............................................................................23
5.3 Governing Law..................................................................................23
5.4 Modification; Waiver in Writing................................................................23
5.5 Notices........................................................................................23
5.6 Submission to Jurisdiction; Waiver of Jury Trial...............................................24
5.7 Headings.......................................................................................24
5.8 Successors and Assigns; Assignment.............................................................25
5.9 Severability...................................................................................25
5.10 Expenses; Indemnity............................................................................25
5.11 Exhibits Incorporated..........................................................................25
5.12 No Joint Venture or Partnership................................................................25
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5.13 Borrower's Waivers.............................................................................25
5.14 Construction of Documents......................................................................26
5.15 Prior Agreements...............................................................................26
5.16 Exculpation....................................................................................26
5.17 Maximum Interest...............................................................................26
5.18 Counterparts...................................................................................27
EXHIBIT A
INITIAL ALLOCATED LOAN AMOUNTS..........................................................................29
ii
</TABLE>
<PAGE>
LOAN AGREEMENT
--------------
THIS LOAN AGREEMENT (this "Agreement"), dated as of October 4, 1996, by and
between FIRST UNION NATIONAL BANK OF NORTH CAROLINA, a national banking
association, having an address at One First Union Center, DC6, Charlotte, North
Carolina 28288-0166 (together with its successors and assigns, "Lender"), and
SMC-SPE-2, a Delaware corporation, having an address at c/o Service Merchandise
Company, Inc., 7100 Service Merchandise Drive, Brentwood, Tennessee 37027
("Borrower"). All capitalized terms used herein shall have the respective
meanings set forth in Section 1.1 hereof.
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Borrower desires to obtain mortgage loan financing in the
aggregate principal amount of FIVE MILLION ONE HUNDRED SEVENTY THOUSAND AND
00/100 DOLLARS ($5,170,000.00) (collectively, the "Loans") in connection with
the acquisition or financing of two (2) Service Merchandise locations
(individually, a "Property" and collectively, the "Properties"), as more
specifically described in the "Mortgages" (as hereinafter defined); and
WHEREAS, the Loans are evidenced by two (2) Promissory Notes and secured by
two (2) Mortgages on the Properties;
WHEREAS, Lender is willing to make the Loans to Borrower, subject to and in
accordance with the terms of this Agreement and the other Loan Documents.
NOW, THEREFORE, in consideration of the covenants, agreements,
representations and warranties set forth in this Agreement, and other good and
valuable consideration, the parties hereto hereby covenant, agree, represent and
warrant as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. For all purposes of this Agreement, except as otherwise
expressly required or unless the context clearly indicates a contrary intent:
"Affiliate" of any specified Person shall mean any Person or entity (i)
which owns beneficially, directly or indirectly, more than fifty percent (50%)
of the outstanding shares of common stock or which is otherwise in control of
Borrower, (ii) of which more than fifty percent (50%) of the outstanding voting
securities are owned beneficially, directly or indirectly, by any entity
described in clause (i) above, or (iii) which is controlled by an entity
described in clause (i) above; provided that for the purposes of this definition
the term "control" and "controlled by" shall have the meanings assigned to them
in Rule 405 under the Securities Act of 1933, as amended.
"Allocated Loan Amount" shall mean the Initial Allocated Loan Amount of
each Property, as such amount may be adjusted from time to time as hereinafter
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set forth. Upon each adjustment in the principal portion of the Indebtedness
(each, a "Total Adjustment"), whether as a result of amortization, prepayment or
as otherwise expressly provided herein or in any other Loan Document, each
Allocated Loan Amount shall be increased or decreased, as the case may be, by an
amount equal to the product of (i) the Total Adjustment, and (ii) a fraction,
the numerator of which is the applicable Allocated Loan Amount (prior to the
adjustment in question) and the denominator of which is the aggregate of the
Allocated Loan Amounts (prior to the adjustment in question). However, when the
principal portion of the Indebtedness is reduced as a result of Lender's receipt
of (i) a Release Price, the Allocated Loan Amount for the Property being
released and discharged from the encumbrance of the applicable Mortgage shall be
reduced to zero (the amount by which such Allocated Loan Amount is reduced being
referred to as the "Released Allocated Amount"), the applicable Mortgage,
Assignment of Leases and other Collateral Documents with respect to such Loan
shall be satisfied and discharged (of record, if applicable), and each other
Allocated Loan Amount shall be decreased by an amount equal to the product of
(1) the excess of (a) the Release Price over (b) the Released Allocated Amount,
and (2) a fraction, the numerator of which is the applicable Allocated Loan
Amount for each Property (prior to the adjustment in question) and the
denominator of which is the aggregate of all of the Allocated Loan Amounts
(prior to the adjustment in question) other than the Allocated Loan Amount
applicable to the Property for which the Release Price was received or (ii) the
sum of Net Proceeds (which term for the purposes of computing the Allocated Loan
Amount only shall be deemed to include casualty and condemnation proceeds that
are applied towards the reduction of the Indebtedness as set forth in Section
1.9 of the Mortgages) and Borrower's Contribution (if any), the Allocated Loan
Amount for the Property with respect to which such sum was received shall be
reduced to zero (the amount by which such Allocated Loan Amount is reduced being
referred to as the "Foreclosed Allocated Amount"), the applicable Mortgage,
Assignment of Leases and other Collateral Documents with respect to such Loan
shall be satisfied and discharged (of record, if applicable), and each other
Allocated Loan Amount shall (x) if the Net Proceeds exceed the Foreclosed
Allocated Loan Amount (such excess being referred to as the "Surplus Net
Proceeds"), be decreased by an amount equal to the product of (1) the Surplus
Net Proceeds and (2) a fraction, the numerator of which is the applicable
Allocated Loan Amount for each Property (prior to the adjustment in question)
and the denominator of which is the aggregate of all of the Allocated Loan
Amounts, (prior to the adjustment in question) other than the Allocated Loan
Amount applicable to the Property with respect to which the Net Proceeds were
received (such fraction being referred to as the "Net Proceeds Adjustment
Fraction"), (y) if the Foreclosed Allocated Amount exceeds the sum of Net
Proceeds and any Borrower's Contribution (such excess being referred to as the
"Net Proceeds Deficiency"), be increased by an amount equal to the product of
(1) the Net Proceeds Deficiency and (2) the Net Proceeds Adjustment Fraction, or
(z) if the sum of Net Proceeds and any Borrower's Contribution equals the
Foreclosed Allocated Amount, remain unadjusted.
"ALTA" shall mean American Land Title Association, or any successor
thereto.
"Annual Release Limit" shall have the meaning specified in Section
2.2.2(c)(4).
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"Assignment of Leases" shall mean, with respect to each Loan, that certain
first priority Assignment of Leases and Rents, dated as of the date hereof, from
Borrower, as assignor, to Lender, as assignee, with respect to the Property that
is encumbered by the applicable Mortgage, assigning to Lender all of Borrower's
interest in and to the Leases and Rents of such Property as security for the
Loan, as such Assignment of Leases may be amended, restated, replaced,
supplemented or otherwise modified from time to time.
"Borrower" shall have the meaning specified in the first Paragraph hereof.
"Borrower's Contribution" shall have the meaning specified in Section 1.9
of the Mortgages.
"Business Day" shall mean any day other than a Saturday, Sunday or any
other day on which national banks in North Carolina are not open for business.
"Closing Date" shall mean the date hereof.
"Code" shall mean the Internal Revenue Code of 1986.
"Collateral Security Documents" shall mean, with respect to each Loan, any
document or instrument given as security for the Note evidencing such Loan,
including, without limitation, the Mortgage and the Assignment of Leases, as the
same may be amended, restated, replaced, supplemented or otherwise modified from
time to time.
"Conditional Commitment" shall mean the Conditional Commitment Letter from
Lender and accepted by SMC dated September 9, 1996, together with the Special
Stipulations Rider and Exhibit A and Exhibit B attached thereto.
"Debt Service" shall mean, with respect to each Loan, the amount of
interest, principal and reserve payments due and payable in respect of such Loan
in accordance with the applicable Note and the other Loan Documents during an
applicable period.
"DSCR" shall mean the quotient obtained by dividing (i) the product of
Store Sales at a Property (or Properties) for the twelve (12) month period
immediately prior to the date for which the computation is made, multiplied by
four (4%) per cent, by (ii) Debt Service for the corresponding period.
"Environmental Indemnity" shall mean that certain Hazardous Substances
Indemnity Agreement of even date herewith, by Borrower and Indemnitor in favor
of Lender with respect to environmental conditions on the Properties, as the
same may be amended, restated, replaced, supplemented or otherwise modified from
time to time.
"Event of Default" shall have the meaning specified in Section 4.1.
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"Fiscal Year" shall mean each annual period commencing on the first (1st)
day after the end of the immediately preceding such annual period and ending the
Sunday nearest the end of each calendar year of the term of this Agreement, or
such other fiscal year of Borrower as Borrower may select from time to time with
the prior written consent of Lender.
"GAAP" shall mean generally accepted accounting principles in the United
States of America as of the date of the applicable financial report.
"Governmental Authority" shall mean any court, board, agency, commission,
office or authority of any nature whatsoever for any governmental unit (federal,
state, county, district, municipal, city or otherwise) whether now or hereafter
in existence.
"Improvements" shall have the meaning specified in the applicable Mortgage
with respect to each Property.
"Indebtedness" shall mean the aggregate indebtedness in the original
principal amounts set forth in, and evidenced by, the Notes, together with all
other obligations and liabilities of Borrower due or to become due to Lender
pursuant to the Notes, this Agreement or any other Loan Document, including,
without limitation, all interest thereon.
"Indemnitor" shall mean SMC-HC, Inc., a Delaware corporation.
"Indemnity" shall mean that certain Indemnity and Guaranty Agreement of
even date herewith, by Indemnitor in favor of Lender, as the same may be
amended, restated, replaced, supplemented or otherwise modified from time to
time.
"Initial Allocated Loan Amount" shall mean, with respect to each Loan, the
principal amount of the applicable Note evidencing such Loan, as set forth on
Exhibit A attached hereto and by this reference a part hereof.
"Lease" shall mean, with respect to each Loan and the applicable Property,
all leases, licenses, tenancies, concessions and occupancy agreements of such
Property or the Improvements or the fixtures or equipment or any portion thereof
or any interest therein, now or hereafter entered into.
"Lender" shall have the meaning specified in the first Paragraph hereof.
"Lien" shall mean, with respect to each Loan and the applicable Property,
any mortgage, deed of trust, deed to secure debt, lien, pledge, hypothecation,
assignment, security interest, or any other encumbrance, charge or transfer of,
on or affecting such Property or any portion thereof or any interest therein,
including, without limitation, any conditional sale or other title retention
agreement, any financing lease having substantially the same economic effect as
any of the foregoing, any financing statement, and mechanic's, materialmen's and
other similar liens.
4
<PAGE>
"Loan" shall mean one of the Loans, which shall be evidenced by a Note and
secured by the Mortgages and the other Collateral Security Documents with
respect to such Loan, to be made by Lender to Borrower pursuant hereto.
"Loans" shall have the meaning specified in the recitals hereof, and shall
refer, collectively, to each Loan.
"Loan Documents" shall mean, collectively, shall mean this Agreement, the
Mortgages, the Notes, the Assignments of Leases, the Environmental Indemnity,
the Indemnity, the Loan Application submitted by SMC to Lender dated August 16,
1996, the Conditional Commitment and all other agreements, instruments,
certificates or documents executed and delivered by Borrower or any Affiliate of
Borrower in connection with the Loans.
"Maturity Date" shall mean November 30, 2011.
"Mortgage" shall mean, with respect to each Loan and the applicable
Property, that certain first priority (i) Mortgage and Security Agreement, (ii)
Leasehold Mortgage and Security Agreement, (iii) Deed of Trust and Security
Agreement or (iv) Deed to Secure Debt and Security Agreement, as applicable,
executed and delivered by Borrower as security for such Loan and the other Loans
and encumbering such Property, as the same may be amended, restated, replaced,
supplemented or otherwise modified from time to time.
"Net Proceeds" shall mean, with respect to each Loan and the applicable
Property, the excess of (i)(x) the purchase price (at foreclosure or otherwise)
actually received by Lender with respect to such Property as a result of the
exercise by Lender of its rights, powers, privileges and other remedies after
the occurrence of an Event of Default, or (y) if Lender (or Lender's nominee) is
the purchaser at foreclosure by credit bid, then the amount of such credit bid,
in either case, over (ii) all costs and expenses, including, without limitation,
all reasonable attorneys' fees and disbursements and any brokerage fees, if
applicable, incurred by Lender in connection with the exercise of such remedies,
including the sale of such Property after a foreclosure against the Property.
"Note" shall mean, with respect to each Loan, the Promissory Note of even
date herewith made by Borrower in favor of Lender in the Initial Allocated Loan
Amount of such Loan, as the same may be amended, restated, replaced,
supplemented or otherwise modified from time to time.
"Person" shall mean any individual, corporation, partnership, limited
liability company, joint venture, estate, trust, unincorporated association, any
federal, state, county or municipal government or any bureau, department or
agency thereof and any fiduciary acting in such capacity on behalf of any of the
foregoing.
"Prepayment Date" shall have the meaning specified in Section 2.2.2.
"Property" shall mean, with respect to each Loan, the parcel of real
property and the Improvements thereon encumbered by the Mortgage specifically
5
<PAGE>
corresponding to such Loan, together with all rights and property pertaining to
such real property and Improvements, as more particularly described in the
granting clauses of such Mortgage and referred to therein as the "Property".
"Rating Agency" shall mean any nationally recognized statistical agency
selected by Lender including, without limitation, Duff & Phelps Rating Co.,
Fitch Investors Services, Inc., Moody's Investors Services, Inc., and/or
Standard and Poors Corporation, collectively, and any successor to any of them;
provided, however, that at any time during which a Loan is an asset of a
securitization or is otherwise an asset of any rated transaction, "Rating
Agency" shall mean the rating agency or rating agencies that from time to time
rate the securities, certificates or other instruments issued in connection with
such securitization or other transaction.
"Release" shall have the meaning specified in Section 2.2.2.
"Release Price" shall have the meaning specified in Section 2.2.2.
"Released Property" shall have the meaning specified in Section 2.2.2.
"REMIC" shall mean a "real estate mortgage investment conduit" within the
meaning of the Code.
"REMIC Provisions" shall mean the provisions of the federal income tax law
relating to REMICs, which appear at Sections 860A through 860G of the Code, and
any related provisions and proposed, temporary and final Treasury regulations
and published rulings, notices and announcements promulgated thereunder, as the
foregoing may be in effect from time to time.
"REMIC Trust" shall have the meaning specified in Section 2.5.2.
"Rents" shall mean, with respect to the Property, all rents, royalties,
issues, profits, revenue, income and other benefits arising from the Leases and
renewals thereof.
"Satisfaction" shall have the meaning specified in Section 2.2.2.
"Secondary Market Transaction" shall have the meaning specified in Section
2.3(14).
"SMC" shall mean Service Merchandise Company, Inc., a Tennessee
corporation.
"Startup Date" shall have the meaning specified in Section 2.5.2.
"State" shall mean, with respect to each Property, the State or
Commonwealth in which such Property or any part thereof is located.
6
<PAGE>
"Store Sales" shall mean, with respect to each Property, the aggregate
selling prices of all merchandise sold or delivered in, at, on or from any part
of such Property and the charges for all services of any sort (including
receipts from vending machines and revenues from the rental of merchandise),
sold or performed in, at, on or from any part of the Property. Store Sales
includes sales and charges for cash or credit, regardless of collection in the
case of the latter. Store Sales excludes (i) refunds made by the retail operator
at such Property to its customers for merchandise returned to such retail
operator, (ii) exchanges of merchandise between stores of Borrower or such
retail operator (or Borrower's or such retail operator's affiliates) where such
exchanges are made solely for the convenient operation of such retail operator's
business and not for the purpose of consummating a sale at another location that
has been made, in fact, at, in, on or from the Property, and (iii) the amount of
any city, county or state sales tax on such sales paid to a taxing authority by
Borrower or such retail operator (but not by any vendor of such retail
operator). A Store Sale shall be deemed to be made in the Property if (x) an
order therefor is secured or received in the Property, or (y) pursuant to mail,
telegraph, telephone or other similar means, orders are received or filled at or
from the Property.
"TI Costs" shall mean costs and expenses incurred by Borrower for the
payment of leasing commissions and expenditures related to repairs, replacements
and improvements (including any tenant work allowance) in connection with the
leasing of a Property or any portion thereof to a new tenant or the renewal or
extension of a Lease to an existing tenant.
"TI Reserve" shall have the meaning specified in Section 2.4 hereof.
"Title Insurance Policy" shall mean, with respect to each Property, the
ALTA extended coverage mortgagee title insurance policy (1992 Loan Policy or
other loan policy acceptable to Lender) issued with respect to such Property and
insuring the lien of the Mortgage encumbering such Property and containing such
endorsements and affirmative assurances as Lender shall reasonably require (to
the extent authorized in the State).
7
<PAGE>
"Total Sale" shall have the meaning specified in Section 2.3 hereof.
"Yield Maintenance" shall mean, with respect to each Loan and the
corresponding Note, the positive excess of (1) the present value ("PV") of all
future installments of principal and interest due under the Note including the
principal amount due at maturity (collectively, "All Future Payments"),
discounted at an interest rate per annum equal to the Treasury Constant Maturity
Yield Index published during the second full week preceding the date for which
the calculation is made for the U.S. Treasury security having a maturity
coterminous with the remaining term of such Note, over (2) the principal amount
of such Loan outstanding immediately before such prepayment [(PV of All Future
Payments) - (principal balance at time of prepayment) = Yield Maintenance].
"Treasury Constant Maturity Yield Index" shall mean the average yield for "This
Week" as reported by the Federal Reserve Board in Federal Reserve Statistical
Release H.15(519). If there is no Treasury Constant Maturity Yield Index for a
U.S. Treasury security having a maturity coterminous with the remaining term of
such Note, then the index shall be equal to the weighted average yield to
maturity of the Treasury Constant Maturity Yield Indices with maturities next
longer and shorter than such remaining average life to maturity, calculated by
averaging (and rounding upward to the nearest whole multiple of 1/100 of 1% per
annum, if the average is not such a multiple) the yields of the relevant
Treasury Constant Maturity Yield Indices (rounded, if necessary, to the nearest
1/100 of 1% with any figure of 1/200 of 1% or above rounded upward).
1.2 Principles of Construction. All references to sections, schedules and
exhibits are to sections, schedules and exhibits in or to this Agreement unless
otherwise specified. Unless otherwise specified, the words "hereof," "herein"
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement. Unless otherwise specified, all meanings attributed to defined terms
herein shall be equally applicable to both the singular and plural forms of the
terms so defined. All accounting terms not specifically defined herein shall be
construed in accordance with GAAP, as modified herein.
ARTICLE 2
GENERAL TERMS
2.1 Loan Commitment; Disbursement to Borrower.
2.1.1 The Loans. Subject to and upon the terms and conditions set forth
herein, Lender hereby agrees to make the Loans to Borrower on the Closing Date,
in the Initial Allocated Loan Amounts set forth in the Notes, which Loans shall
mature on the Maturity Date. Borrower hereby agrees to accept the Loans on the
Closing Date, subject to and upon the terms and conditions set forth herein.
2.1.2 The Notes. Each Loan shall be evidenced by a Note in the Initial
Allocated Loan Amount of such Loan. The Loan evidenced by each Note shall bear
interest as provided in such Note, and shall be subject to repayment and
prepayment as provided in such Note and in Section 2.2 hereof. The Loan
8
<PAGE>
evidenced by each Note shall be entitled to the benefits of this Agreement and
shall be secured by the Mortgages, Assignments of Leases and the other
Collateral Security Documents.
2.2 Loan Repayment/Prepayment.
2.2.1 Loan Repayment. Borrower shall repay each Loan in accordance with the
provisions of the Note evidencing such Loan.
2.2.2 Prepayment.
(a) Except as set forth in Sections 2.2.2(b) and (c) hereof, no prepayment
of the Indebtedness may be made in whole or in part.
(b) With respect to each Loan and each Note evidencing such Loan, the
following prepayment terms and conditions shall apply:
(1) The Loan may be prepaid in whole or in part at any time after the first
(1st) anniversary of the Note provided (i) written notice of such prepayment is
received by Lender not more than sixty (60) days and not less than thirty (30)
days prior to the date of such prepayment, (ii) such prepayment is accompanied
by all unpaid interest accrued thereunder and all other sums then due thereunder
and under the other Loan Documents (including this Agreement), and (iii) if such
prepayment occurs prior to the date that is six (6) months prior to the Maturity
Date, Lender is paid a prepayment fee in an amount equal to the following:
(i) during the period from and including the first (1st) anniversary of the
Note until the date that is nine (9) years and six (6) months after the date of
the Note, the greater of (i) one percent (1.0%) of the principal amount being
prepaid, or, in the event of a Release, one percent (1%) of the then Allocated
Loan Amount for the Property to be Released, or (ii) Yield Maintenance;
(ii) during the period from and including the date that is nine (9) years
and six (6) months after the date of the Note until the date that is ten (10)
years and six (6) months after the date of the Note, five percent (5%) of the
principal amount being prepaid, or, in the event of a Release, five percent (5%)
of the then Allocated Loan Amount for the Property to be Released;
(iii) during the period from and including the date that is ten (10) years
and six (6) months after the date of the Note until the date that is eleven (11)
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years and six (6) months after the date of the Note, four percent (4%) of the
principal amount being prepaid, or, in the event of a Release, four percent (4%)
of the then Allocated Loan Amount for the Property to be Released;
(iv) during the period from and including the date that is eleven (11)
years and six (6) months after the date of the Note until the date that is
twelve (12) years and six (6) months after the date of the Note, three percent
(3%) of the principal amount being prepaid, or, in the event of a Release, three
percent (3%) of the then Allocated Loan Amount for the Property to be Released;
(v) during the period from and including the date that is twelve (12) years
and six (6) months after the date of the Note until the date that is thirteen
(13) years and six (6) months after the date of the Note, two percent (2%) of
the principal amount being prepaid, or, in the event of a Release, two percent
(2%) of the then Allocated Loan Amount for the Property to be Released; and
(vi) during the period from and including the date that is thirteen (13)
years and six (6) months after the date of the Note until the date that is
fourteen (14) years and six (6) months after the date of the Note, one percent
(1%) of the principal amount being prepaid, or, in the event of a Release, one
percent (1%) of the then Allocated Loan Amount for the Property to be Released.
In the event that any prepayment fee is due hereunder, Lender shall deliver
to Borrower a statement setting forth the amount and determination of the
prepayment fee, and, provided that Lender shall have in good faith applied the
formula described above, Borrower shall not have the right to challenge the
calculation or the method of calculation set forth in any such statement in the
absence of manifest error. Lender shall not be obligated or required to have
actually reinvested the prepaid principal balance at the Treasury Constant
Maturity Yield or otherwise as a condition to receiving the prepayment fee. No
prepayment fee or shall be due or payable in connection with any prepayment of
the indebtedness evidenced by the Note, in whole, made on or after the date that
is six (6) months prior to the Maturity Date, or upon prepayment resulting from
application of insurance or condemnation proceeds and any related Borrower's
Contribution as provided in the Mortgage at any time during the Loan term. In
addition to the aforesaid prepayment fee, if, upon any such prepayment (whether
prior to or after the date that is six (6) months prior to the Maturity Date),
the aforesaid prior written notice has not been received by Lender, the
prepayment fee shall be increased by an amount equal to the lesser of (i) thirty
(30) days' unearned interest computed on the outstanding principal balance of
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the Note so prepaid and (ii) unearned interest computed on the outstanding
principal balance of the Note so prepaid for the period from, and including, the
date of prepayment through the Maturity Date.
(2) Partial prepayments of the indebtedness evidenced by a Note shall not
be permitted, except partial prepayments resulting from Lender applying
insurance or condemnation proceeds and any related Borrower's Contribution to
reduce the outstanding principal balance of the Loan evidenced by such Note as
provided in the corresponding Mortgage, in which event no prepayment fee shall
be due. No notice of prepayment shall be required under the circumstance
specified in the preceding sentence. No principal amount repaid may be
reborrowed. Partial payments of principal of any Loan shall be applied to the
unpaid principal balance thereof, but such application shall not reduce the
amount of the fixed monthly installments required to be paid pursuant to Section
1.01 of the corresponding Note.
(3) Except as otherwise expressly provided in Section 2.2.2(b)(2) above,
the prepayment fees provided above shall be due, to the extent permitted by
applicable law, under any and all circumstances where all or any portion of the
Note is paid prior to the Maturity Date, whether such prepayment is voluntary or
involuntary, even if such prepayment results from Lender's exercise of its
rights upon Borrower's default and acceleration of the maturity date of the Note
(irrespective of whether foreclosure proceedings have been commenced), and shall
be in addition to any other sums due hereunder or under any of the other Loan
Documents. No tender of a prepayment of the Note with respect to which a
prepayment fee is due shall be effective unless such prepayment is accompanied
by the prepayment fee. Any tender of prepayment of any Loan made prior to the
first (1st) anniversary of the corresponding Note, whether voluntary or
involuntary (except partial prepayments resulting from Lender applying insurance
or condemnation proceeds to reduce the outstanding principal balance of the Loan
evidenced by such Note as provided in the corresponding Mortgage), must include
a prepayment fee computed as provided in Section 2.2.2(b) above plus an
additional prepayment fee of one percent (1%) of the principal balance of the
Note.
(4) Except in the case of a prepayment resulting from Lender applying
insurance or condemnation proceeds and any related Borrower's Contribution to
the repayment of a Loan in whole, Borrower may not prepay any one Loan in whole
pursuant to this Section 2.2.2(b) without prepaying all Loans in whole.
(c) Notwithstanding anything to the contrary contained in Section 2.2.2(b)
above, Borrower may prepay any Loan(s) in whole in accordance with this Section
2.2.2(c) without prepaying all Loans in whole. If Borrower desires to make a
prepayment pursuant to this Section 2.2.2(c), and sends a notice to Lender
indicating that such prepayment is being made in connection with a release of a
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Property from the lien of a Mortgage pursuant to this clause (c) (the "Released
Property"), then, upon the request of Borrower, Lender shall, upon satisfaction
of all the following terms and conditions, execute, acknowledge and deliver to
Borrower a satisfaction of such Mortgage or other reconveyance of the Released
Property in form and substance reasonably satisfactory to Borrower and Lender (a
"Satisfaction"), whereby Lender acknowledges and agrees to release such Released
Property from the lien of such Mortgage (a "Release"):
(1) Lender shall have received in immediately available federal funds on
the date proposed for such prepayment (the "Prepayment Date") any prepayment fee
payable pursuant to clause (b) above, plus an amount equal to one hundred ten
(110%) percent of the then Allocated Loan Amount for the Property to be released
(the "Release Price") accompanied by all unpaid interest accrued under the
Loan(s) being prepaid, which Release Price shall be applied to the repayment of
the Loans as provided in the definition of "Allocated Loan Amount";
(2) Either (a) the DSCR for the Property to be released shall be less than
the aggregate DSCR for all of the Properties (excluding the Released Property),
provided that the aggregate DSCR for all of the Properties (excluding the
Released Property) is at least 1.25 or (b) the aggregate DSCR for all of the
Properties (excluding the Released Property) for the twelve (12) month period
immediately prior to such Release is not less than 1.30; provided, however, that
neither this clause (2) nor clauses (3) or (4) below shall be applicable to a
Release obtained by Borrower pursuant to Section 1.9 of a Mortgage, or a Release
in connection with the exercise by Borrower of its cure rights under Section
4.1(g) hereof. Notwithstanding the foregoing, this clause (2) shall be
applicable to a Release in connection with the exercise by Borrower of its cure
rights under Section 4.1(g) hereof if, in Lender's reasonable judgment, Borrower
allowed the Property that is subject to such cure rights to become vacant for
the purpose of obtaining a Release that does not meet the conditions of this
clause (2).
(3) Borrower shall, at its expense, provide all financial and other
information to substantiate Store Sales to Lender's reasonable satisfaction,
including updated sales information as provided herein.
(4) Borrower shall not be permitted to obtain Releases for more than twenty
percent (20%) (rounded up or down to the nearest whole number) of the Properties
in any Fiscal Year (the "Annual Release Limit"); provided, however, that (i) in
any Fiscal Year Borrower shall be permitted a Release of one (1) additional
Property over the Annual Release Limit in connection with the exercise by
Borrower of its cure rights under Section 4.1(g) hereof; provided, that, in
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Lender's reasonable judgment, Borrower did not allow the Property that is
subject to such cure rights to become vacant for the purpose of obtaining an
additional Release within such Fiscal Year, and (ii) any Release obtained by
Borrower pursuant to Section 1.9 of a Mortgage shall not be included in the
calculation of the Annual Release Limit.
(5) The Released Property shall be transferred to a Person that is not the
immediate parent of Borrower; provided, however, that title may pass through
such immediate parent to another entity in a series of transfers that occur on
the same day, and Borrower shall provide Lender with evidence reasonably
satisfactory to Lender confirming the foregoing, including, without limitation,
a copy of the deed conveying title to the Released Property, certified to be
true and complete by Borrower, and a certificate of Borrower confirming the
name, address and non-parent status of such ultimate transferee.
(6) Borrower shall, at its sole expense, prepare any and all documents and
instruments necessary to effect the Release, or otherwise reasonably required by
Lender in connection therewith, all of which shall be subject to the approval of
Lender, and Borrower shall pay all reasonable costs incurred by Lender
(including, but not limited to, attorneys' fees and disbursements, title
endorsements acceptable to Lender insuring that the lien of the mortgages on the
remaining Properties shall continue in effect with first lien priority and shall
be unaffected by the release of such Property, and all other reasonable costs
incurred by Lender in connection with the review, execution and delivery of such
documents and the Release transaction. Without limitation to the foregoing,
Borrower shall deliver or cause to be delivered, at Borrower's sole expense, a
re-affirmation of any guaranty or indemnification delivered to Lender relative
to any Loan, in form and substance satisfactory to Lender.
(7) No Event of Default shall have occurred and be continuing at the time
of the request for the Release or on the Prepayment Date.
(8) Lender shall have received not less than forty-five (45) days' prior
written notice.
2.3 Total Sale. Subject to the terms of this Section 2.3, Lender shall
consent to a one time sale, conveyance or transfer of all of the Properties
(hereinafter, a "Total Sale") to any person or entity provided that each of the
following terms and conditions are satisfied:
(a) No Event of Default shall have occurred and be continuing at the time
of the request for the prospective Total Sale or on the date of the Total Sale;
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(b) Borrower gives Lender written notice of the terms of such prospective
Total Sale not less than sixty (60) days before the date on which such Total
Sale is scheduled to close and, concurrently therewith, gives Lender all such
information concerning the proposed transferee of the Properties (hereinafter,
"Buyer") as Lender would require in evaluating an initial extension of credit to
a borrower and pays to Lender a non-refundable application fee in the amount of
$5,000.00. Lender, acting in good faith, shall have the right to approve or
disapprove the proposed Buyer. In determining whether to give or withhold its
approval of the proposed Buyer, Lender shall consider Buyer's experience and
track record in owning and operating facilities similar to the Properties,
Buyer's entity structure, Buyer's financial strength, Buyer's general business
standing and Buyer's relationships and experience with contractors, vendors,
tenants, lenders and other business entities; provided, however, that,
notwithstanding Lender's agreement to consider the foregoing factors in
determining whether to give or withhold such approval, such approval shall be
given or withheld based on what Lender in good faith determines to be
commercially reasonable in Lender's sole discretion and, if given, may be given
subject to such conditions as Lender may in good faith deem appropriate;
(c) Borrower pays Lender, concurrently with the closing of such Total Sale,
all out-of- pocket costs and expenses, including, without limitation, attorneys'
fees, reasonably incurred by Lender in connection with the Total Sale plus a
non-refundable assumption fee equal to one percent (1.0%) of the then
outstanding aggregate principal balance of the then Allocated Loan Amount for
the Properties;
(d) Buyer assumes and agrees to pay the Indebtedness subject to the
provisions of Section 5.16 hereof and, prior to or concurrently with the closing
of such Total Sale, Buyer executes, without any cost or expense to Lender,
including, without limitation, attorneys' fees, such documents and agreements as
Lender shall reasonably require to evidence and effectuate said assumption and
delivers such legal opinions as Lender may reasonably require;
(e) Borrower and Buyer execute, without any cost or expense to Lender,
including, without limitation attorneys' fees, new financing statements or
financing statement amendments and any additional documents as may be reasonably
requested by Lender;
(f) Buyer and Lender execute, without any cost or expense to Lender,
including without limitation attorneys' fees, such amendments to the Loan
Documents and any additional documents as may be reasonably requested by Lender.
(g) Borrower shall cause to be delivered to Lender, without any cost or
expense to Lender, including without limitation attorneys' fees, such
endorsements to Lender's title insurance policy, hazard insurance endorsements
or certificates and other similar materials as Lender may reasonably deem
necessary at the time of the Total Sale, all in form and substance reasonably
satisfactory to Lender, including, without limitation, an endorsement or
endorsements to Lender's title insurance policy insuring the liens of the
Mortgages, extending the effective date of such policy to the date of execution
and delivery (or, if later, of recording) of the assumption agreement referenced
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above in subparagraph (4) of this Section with no additional exceptions added to
such policy and insuring that fee simple title to the Properties is vested in
Buyer;
(h) Borrower executes and delivers to Lender, without any cost or expense
to Lender, including, without limitation, attorneys' fees, a release of Lender,
its officers, directors, employees and agents, from all claims and liability
relating to the transactions evidenced by the Loan Documents through and
including the date of the closing of the Total Sale, which agreement shall be in
form and substance reasonably satisfactory to Lender and shall be binding upon
Borrower and Buyer;
(i) Such Total Sale is not construed so as to relieve any current guarantor
or indemnitor of its obligations under any guaranty or indemnity agreement
executed in connection with the Loans and each such current guarantor and
indemnitor executes, without any cost or expense to Lender, including, without
limitation, attorneys' fees, such documents and agreements as Lender shall
reasonably require to evidence and effectuate the ratification of each such
guaranty and indemnity agreement, provided that if Buyer or a party associated
with Buyer in good faith approved by Lender in its sole discretion assumes the
obligations of the current guarantor or indemnitor under its guaranty or
indemnity agreement and Buyer or such party associated with Buyer, as
applicable, executes, without any cost or expense to Lender, including, without
limitation, attorneys' fees, a new guaranty or indemnity agreement in form and
substance satisfactory to Lender, then Lender shall release the current
guarantor or indemnitor from all obligations arising under its guaranty or
indemnity agreement after the closing of such Total Sale;
(j) Subject to the provisions of Section 5.16 hereof, such Total Sale is
not construed so as to relieve Borrower of any personal liability under this
Agreement or any of the other Loan Documents for any acts or events occurring or
obligations arising prior to or simultaneously with the closing of such Total
Sale and Borrower executes, at Borrower's sole cost and expense, such documents
and agreements as Lender shall reasonably require to evidence and effectuate the
ratification of said personal liability;
(k) Buyer shall furnish, if Buyer is a corporation, partnership or other
entity, all appropriate papers evidencing Buyer's capacity and good standing,
and the qualification of the signers to execute the assumption of the
Indebtedness, which papers shall include certified copies of all documents
relating to the organization and formation of Buyer and of the entities, if any,
which are partners of Buyer. Buyer and such constituent partners, members or
shareholders of Buyer (as the case may be), as Lender shall require, shall be a
single purpose entity, whose formation documents shall be approved by counsel to
Lender;
(l) Buyer shall assume the obligations of Borrower under any management
agreements pertaining to the Properties;
(m) Buyer shall furnish an opinion of counsel reasonably satisfactory to
Lender and its counsel (i) that Buyer's formation documents provide for the
matters described in subparagraph (11) of this Section, (ii) that the assumption
of the Indebtedness has been duly authorized, executed and delivered, and that
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the Loan Documents are valid, binding and enforceable against Buyer in
accordance with their terms, (iii) that Buyer and any entity that is a
controlling stockholder or general partner of Buyer, have been duly organized,
and are in existence and good standing, and (v) with respect to such other
matters, as Lender may request; and
(n) Lender shall have received evidence in writing from the Rating Agencies
to the effect that the proposed transfer will not result in a re-qualification,
reduction or withdrawal of any rating initially assigned or to be assigned in a
Secondary Market Transaction. For purposes hereof, a "Secondary Market
Transaction" shall be (a) any sale of a Mortgage or Mortgages, a Note or Notes
and other applicable Loan Documents to one or more investors as a whole loan;
(b) a participation of a Loan or Loans to one or more investors, (c) any deposit
of a Mortgage or Mortgages, a Note or Notes and other applicable Loan Documents
with a trust or other entity that may sell certificates or other instruments to
investors evidencing an ownership interest in the assets of such trust or other
entity, or (d) any other sale or transfer of a Loan or any interest therein to
one or more investors.
2.4 Transfer of Individual Property. Lender shall consent to a one time
sale, conveyance or transfer of an individual Property encumbered by a Mortgage
subject to, and in accordance with, the terms, provisions and conditions of
Section 1.13(c) of the applicable Mortgage.
2.5 Substitution of a Property. Subject to the terms of this Section 2.5,
Borrower may substitute for a Property (the "Substituted Property") a property
that is not encumbered by a Mortgage (the "Substitution Property") to serve as
the collateral for the applicable Loan (a "Substitution") provided that each of
the following terms and conditions are satisfied:
(a) No Event of Default shall have occurred and be continuing at the time
of the request for the proposed Substitution or on the date of the Substitution;
(b) Such Substitution shall only be permitted prior to the date that is
ninety (90) days after the date on which an election to treat the Loan that is
secured by such Property, along with other assets, if any, as a REMIC (such
assets pool, the "REMIC Trust") is made (the "Startup Date"); provided, however,
that such ninety (90) day period is based on the REMIC Provisions in effect as
of the date hereof, and is subject to adjustment by Lender based upon any
changes to such REMIC Provisions. The Substitution must be acceptable to (a)
Lender, if prior to the Startup Date, or (b) any assignee of Lender and the then
current servicer of such Loan, if subsequent to the Startup Date (either, the
"Approving Party"), as well as the Rating Agencies, which approval shall include
consideration of, but not be limited to, the appraised value of the proposed
Substitution Property (which shall be at least equal to the appraised value of
the Substituted Property as of the date hereof), the type and location of the
proposed Substitution Property, and the operating income and Store Sales of the
proposed Substitution Property (which shall be at least equal to the operating
income and the Store Sales of the Substituted Property as of the date hereof).
Without limiting the generality of the foregoing, Borrower must satisfy the
following conditions:
(1) Borrower shall provide to the Approving Party written notice of the
terms of such prospective Substitution not less than sixty (60) days before the
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date on which such Substitution is scheduled to be effected, together with (x)
all such information concerning the proposed Substitution Property as Lender
would require in evaluating an initial extension of credit to a borrower to be
secured by such Substitution Property and as may be required by the Approving
Party and (y) payment of a non-refundable application fee in the amount of
$5,000.00. The Approving Party shall have the right to approve or disapprove the
proposed Substitution Property; provided, however, that, such approval shall be
given or withheld based on what the Approving Party in good faith determines to
be commercially reasonable in the Approving Party's sole discretion and, if
given, may be given subject to such conditions as the Approving Party in good
faith may deem appropriate;
(2) Borrower pays to the Approving Party, concurrently with the effecting
of such Substitution, a non-refundable assumption fee in an amount equal to all
out- of-pocket costs and expenses, including, without limitation, attorneys'
fees, reasonably incurred by such Approving Party in connection with the
Substitution;
(3) Borrower executes and delivers, without any cost or expense to the
Approving Party, including, without limitation, attorneys' fees, a Mortgage,
Assignment of Leases and Rents, financing statements and any additional loan
documents as the Approving Party in good faith may, in its sole discretion, deem
necessary or expedient, including amendments and ratifications to the
Environmental Indemnity and the Indemnity and such amendments to the other Loan
Documents as the Approving Party may reasonably require, all in form and
substance reasonably satisfactory to the Approving Party;
(4) Borrower shall cause to be delivered to the Approving Party, without
any cost or expense to the Approving Party, including without limitation,
attorneys' fees, an ALTA title insurance policy, with any endorsements the
Approving Party in good faith may require in its sole discretion, insuring the
Approving Party, in an amount at least equal to the Allocated Loan Amount to be
secured by the Substitution Property, which policy shall provide that the
Mortgage constitutes a first lien or charge upon the Substitution Property
subject only to such items as shall have been approved in writing by the
Approving Party and its attorneys;
(5) Borrower shall cause to be delivered to the Approving Party hazard
insurance endorsements or certificates and other similar materials as the
Approving Party may reasonably deem necessary at the time of the Substitution,
all in form and substance reasonably satisfactory to the Approving Party;
(6) Borrower shall cause to be delivered to the Approving Party all
documents and information required by the Conditional Commitment with respect to
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the Approving Party's review and approval of a Substitution Property and
Borrower shall comply with all conditions with respect to a Property set forth
in the Conditional Commitment;
(7) Borrower executes and delivers to the Approving Party, without any cost
or expense to the Approving Party, including, without limitation, attorneys'
fees, a release of the Approving Party, its officers, directors, employees and
agents, from all claims and liability relating to the transactions evidenced by
the Substituted Property through and including the date of the effecting of the
Substitution, which agreement shall be in form and substance reasonably
satisfactory to the Approving Party and shall be binding upon Borrower;
(8) Borrower shall furnish an opinion of counsel reasonably satisfactory to
the Approving Party and its counsel to the effect that (i) the Substitution does
not violate any, and is in compliance with all, REMIC Provisions, will not
endanger the status of the REMIC Trust as a REMIC, or result in the imposition
of a tax upon the REMIC Trust (including, but not limited to, the tax on
prohibited transactions as defined in Section 860F(a)(2) of the Code and the tax
on contributions to a REMIC set forth in Section 860G(d) of the Code), (ii) that
Borrower's formation documents provide for the Substitution, (iii) that the
Substitution has been duly authorized, executed and delivered, and that the Loan
Documents (including, without limitation, any amendments thereto or any new Loan
Documents executed in connection with the Substitution) are valid, binding and
enforceable against Borrower in accordance with their terms, (iv) that Borrower
and any entity that is a controlling stockholder of Borrower, have been duly
organized, and are in existence and good standing, and (v) with respect to such
other matters as the Approving Party may request;
(9) The Approving Party shall have received evidence in writing from the
Rating Agencies to the effect that the proposed Substitution will not result in
a re- qualification, reduction or withdrawal of any rating initially assigned or
to be assigned in a Secondary Market Transaction;
(10) Such Substitution is not construed so as to relieve any current
guarantor or indemnitor of its obligations under any guaranty or indemnity
agreement executed in connection with the Loans; and
(11) Subject to the provisions of Section 5.16 hereof, such Substitution is
not construed so as to relieve Borrower of any personal liability under this
Agreement or any of the other Loan Documents for any acts or events occurring or
obligations arising prior to or simultaneously with the effecting of such
Substitution and Borrower executes, at Borrower's sole cost and expense, such
documents and agreements as the Approving Party shall reasonably require to
evidence and effectuate the ratification of said personal liability.
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2.6 TI Reserve.
(a) As additional security for the Loan, on the date hereof Borrower has
established, and Borrower shall maintain at all times while any portion of the
Loan remains outstanding, a TI Costs reserve (the "TI Reserve") with Lender for
payment of TI Costs in the amount of One Hundred Twenty-Five Thousand and 00/100
Dollars ($125,000.00), which amount shall be reduced proportionately with
reductions in the Indebtedness upon the transfer or Release of a Property in
accordance with the terms of the this Agreement and the other Loan Documents.
Borrower hereby agrees to pay all TI Costs with respect to each Property
(without regard to the amount of money then available in the TI Reserve). So
long as no Event of Default hereunder or under the other Loan Documents has
occurred and is continuing, all sums in the TI Reserve shall be held by Lender
to pay TI Costs. Provided that (i) Lender has received written notice from
Borrower requesting funds from the TI Reserve at least ten (10) Business Days
prior to the due date of any requested disbursement relating to TI Costs, or if
Borrower makes timely payment therefor, not more than forty-five (45) days after
Borrower has made such payment, (ii) no Event of Default has occurred and is
continuing, (iii) Borrower furnishes Lender with a written disbursement request
for the payment or reimbursement of such TI Costs, not more frequently than once
every ninety (90) day period, (iv) there are sufficient funds available in the
TI Reserve with respect to Borrower's disbursement request, (v) Borrower shall
have theretofore complied with the requirements of the Mortgages relative to (1)
new leases, licenses and/or occupancy agreements with respect to the Properties
and (2) the performance of improvements and alterations to the Properties, (vi)
Borrower shall have theretofore furnished Lender with reasonably satisfactory
evidence of the progress and/or completion of tenant improvement work, the cost
of tenant improvement work, reasonably satisfactory evidence that any and all
completed tenant improvement work complies with law, lien waivers for lienable
work, copies of bills, invoices and other reasonable documentation as may be
required by Lender to substantiate the use of such funds and establish that the
TI Costs that are the subject of such disbursement request represent completed
or partially completed tenant improvement work performed at all or any portion
of the Property, and (vii) Borrower has replenished the TI Reserve in the amount
of any previous withdrawals therefrom in accordance with this Section, then
Lender shall make such payments out of the TI Reserve. In making any payment
from the TI Reserve, Lender shall be entitled to rely on such request from
Borrower without any inquiry into the accuracy, validity or contestability of
any such amount. Borrower shall deposit the amount of any funds withdrawn from
the TI Reserve within ten (10) days after the date of such withdrawal. The TI
Reserve shall not, unless otherwise explicitly required by applicable law, be or
be deemed to be escrow or trust funds, but, at Lender's option and in Lender's
discretion, may either be held in a separate account or be commingled by Lender
with the general funds of Lender. Interest on the funds contained in the TI
Reserve shall be credited to Borrower. The TI Reserve is solely for the
protection of Lender and entails no responsibility on Lender's part beyond the
payment of the costs and expenses described in this Section in accordance with
the terms hereof and beyond the allowing of due credit for the sums actually
received. In the event that the amounts on deposit or available in the TI
Reserve are inadequate to pay the TI Costs, Borrower shall pay the amount of
such deficiency. Upon assignment of this Agreement by Lender, any funds in the
TI Reserve shall be turned over to the assignee and any responsibility of
Lender, as assignor, with respect thereto shall terminate. If there is an Event
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of Default under this Agreement, Lender may, but shall not be obligated to,
apply at any time the balance then remaining in the TI Reserve against the
indebtedness secured by the Mortgages in whatever order Lender shall
subjectively determine. No such application of the TI Reserve shall be deemed to
cure any default hereunder.
(b) At Borrower's option, the TI Reserve can be deposited with Lender in
the form of a letter of credit (a "Letter of Credit"). The Letter of Credit
shall be unconditional and irrevocable, issued by a commercial bank having a
rating of "AA" or higher by Moody's Investors Services, Inc. and Standard and
Poors Corporation at the time of issuance, the letter of credit payment window
of which bank is located in New York County, New York and otherwise satisfactory
to Lender in its sole discretion. The Letter of Credit shall be payable (x) to
Lender upon presentation solely of a sight draft stating that an event under
this Agreement has occurred that entitles Lender to such draw and (y) in
multiple drafts. The Letter of Credit shall be for a period expiring not earlier
than one (1) year after the date of delivery of the Letter of Credit to Lender.
The Letter of Credit shall be replaced not less than thirty (30) days prior to
the expiration date of the Letter of Credit. If Borrower fails to replace timely
the Letter of Credit with either (i) a cash deposit meeting the requirements of
Section 2.6(a), or (ii) a new Letter of Credit meeting the requirements of this
clause (b), Lender may draw on the then expiring Letter of Credit and apply all
or any portion of the proceeds therefrom to (x) the indebtedness secured by the
Mortgages or (y) the funding of the TI Reserve, in Lender's sole discretion.
Otherwise, Lender may draw upon the Letter of Credit only in respect of any
amount that Lender would be entitled to use, apply or retain the proceeds of the
TI Reserve under this Section.
(c) In the event that the Letter of Credit bank shall at any time cease to
have a long-term rating of at least "A" or higher by any one of the Rating
agencies, Borrower shall, within five (5) Business Days after notice of the
occurrence of such event, replace the Letter of Credit with either (i) a cash
deposit meeting the requirements of Section 2.6(a), or (ii) a letter of credit
(the "Replacement Letter of Credit") issued by a commercial bank having a
long-term rating of "AA" or higher by Moody's Investors Services, Inc. and
Standard and Poors Corporation, the letter of credit window of which bank is
located in New York County, New York and otherwise satisfactory to Lender in its
sole discretion. Simultaneously with the furnishing of such Replacement Letter
of Credit, Lender shall surrender to Borrower the Letter of Credit which is
being replaced and thereupon the Replacement Letter of Credit shall be deemed to
be the Letter of Credit for all purposes of this Agreement. If Borrower shall
fail to furnish such Replacement Letter of Credit within such five (5) Business
Day period, Lender may draw upon the then Letter of Credit and apply all or any
portion of the proceeds therefrom to (x) the indebtedness secured by the
Mortgages or (y) the funding of the TI Reserve, in Lender's sole discretion.
(d) Upon the full repayment of the Loans, the unexpended portion of the TI
Reserve (including any corresponding Letter(s) of Credit) shall be returned to
Borrower.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES
3.1 Borrower's Representations. The representations and warranties of
Borrower set forth in the Mortgages are hereby incorporated herein in full.
3.2 Survival of Representations. Borrower agrees that all of the
representations and warranties of Borrower incorporated in Section 3.1 and
elsewhere in this Agreement and in the other Loan Documents shall survive for so
long as any amount remains owing to Lender under the Notes, the Mortgages, this
Agreement or any of the other Loan Documents. All representations, warranties,
covenants and agreements made in this Agreement or in the other Loan Documents
by Borrower shall be deemed to have been relied upon by Lender notwithstanding
any investigation heretofore or hereafter made by Lender or on its behalf.
ARTICLE 4
DEFAULTS
4.1 Event of Default. Each of the following events occurring with respect
to Borrower, or any Property shall constitute an "Event of Default" hereunder:
(a) if Borrower fails to punctually perform any covenant, agreement,
obligation, term or condition hereof that requires payment of any money to
Lender (except those regarding payments to be made under the Notes, which
failure is subject to any grace periods set forth in the Notes) for ten (10)
days after written notice thereof from Lender to Borrower.
(b) if Borrower fails to perform any other covenant, agreement, obligation,
term or condition set forth herein other than those otherwise described
elsewhere in this Section 4.1 and, to the extent such failure or default is
susceptible of being cured, the continuance of such failure or default for
thirty (30) days after written notice thereof from Lender to Borrower; provided,
however, that, if such default is susceptible of cure but such cure cannot be
accomplished with reasonable diligence within said period of time, and if
Borrower commences to cure such default promptly after receipt of notice thereof
from Lender, and thereafter prosecutes the curing of such default with
reasonable diligence, such period of time shall be extended for such period of
time as may be necessary to cure such default with reasonable diligence, but not
to exceed an additional ninety (90) days (the "Additional Cure Period");
provided, further, that if such default is susceptible of cure but such cure
cannot be accomplished with reasonable diligence within said Additional Cure
Period and Borrower notifies Lender not later than ten (10) days prior to the
end of such Additional Cure Period of its intention to continue to cure such
default with all due diligence and thereafter continuously prosecutes the curing
of such default with all due diligence, such Additional Cure Period shall be
extended for such period of time as may be necessary to cure such default with
all due diligence, but not to exceed an additional sixty (60) days.
(c) if any representation or warranty made herein, in or in connection with
any application or commitment relating to the Loans, or in any of the other Loan
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Documents to Lender by Borrower or by any indemnitor or guarantor under any
indemnity or guaranty executed in connection with the Loans is determined by
Lender to have been false or misleading in any material respect at the time
made.
(d) if a default occurs under any of the other Loan Documents that is not
cured within any applicable grace or cure period therein provided.
(e) if Borrower attempts to (i) assign its respective rights under this
Agreement or any of the other Loan Documents or any interest herein or therein
or (ii) transfer the Properties or any interest therein, in either case in
contravention of the Loan Documents.
(f) if greater than twenty percent (20%) (rounded up or down to the nearest
whole number) of the Properties at any one time are each two-thirds (2/3) or
more vacant for a period of six (6) consecutive months excluding any periods of
time during which restorations, alterations or improvements are being diligently
performed on any such Properties either following any casualty or condemnation
or as otherwise permitted under the Loan Documents.
(g) if (i) a Property becomes vacant, (ii) as a result thereof, a
termination option and/or purchase option is exercised by the counterparty to a
ground lease, reciprocal easement agreement or other agreement affecting
Borrower's right to occupy and operate such Property, and (iii) prior to the
earlier to occur of (i) thirty (30) days thereafter or (2) the date that such
termination or purchase, as applicable, becomes effective, Borrower fails to
effect the Release of such Property pursuant to Section 2.2.2(c) hereof;
provided, however, that Borrower shall not have the right to effect such a
Release prior to the first (1st) anniversary of the applicable Note.
4.2 Remedies.
(a) Upon the occurrence of an Event of Default, all or any one or more of
the rights, powers, privileges and other remedies available to Lender against
Borrower under this Agreement or any of the other Loan Documents or at law or in
equity may be exercised by Lender at any time and from time to time, whether or
not all or any of the Indebtedness shall be declared due and payable, and
whether or not Lender shall have commenced any foreclosure proceeding or other
action for the enforcement of its rights and remedies under any of the Loan
Documents with respect to the Properties. Any such actions taken by Lender shall
be cumulative and concurrent and may be pursued independently, singly,
successively, together or otherwise, at such time and in such order as Lender
may determine in its sole discretion, to the fullest extent permitted by law,
without impairing or otherwise affecting the other rights and remedies of Lender
permitted by law, equity or contract or as set forth herein or in the other Loan
Documents.
(b) The rights, powers and remedies of Lender under this Agreement shall be
cumulative and not exclusive of any other right, power or remedy which Lender
may have against Borrower pursuant to this Agreement or the other Loan
Documents, or existing at law or in equity or otherwise. Lender's rights, powers
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and remedies may be pursued singly, concurrently or otherwise, at such time and
in such order as Lender may determine in Lender's sole discretion. No delay or
omission to exercise any remedy, right or power accruing upon an Event of
Default shall impair any such remedy, right or power or shall be construed as a
waiver thereof, but any such remedy, right or power may be exercised from time
to time and as often as may be deemed expedient. A waiver of one default or
Event of Default with respect to Borrower shall not be construed to be a waiver
with respect to any subsequent default or Event of Default by Borrower, or to
impair any remedy, right or power consequent thereon.
ARTICLE 5
MISCELLANEOUS
5.1 Survival. This Agreement and all covenants, agreements, representations
and warranties made herein and in the certificates delivered pursuant hereto
shall survive the making by Lender of the Loans and the execution and delivery
to Lender of the Notes, and shall continue in full force and effect so long as
all or any of the Indebtedness is outstanding and unpaid.
5.2 Lender's Discretion. Whenever pursuant to this Agreement Lender
exercises any right given to it to approve or disapprove, or any arrangement or
term is to be satisfactory to Lender, the decision of Lender to approve or
disapprove or to decide whether arrangements or terms are satisfactory or not
satisfactory shall (except as is otherwise specifically herein provided) be in
the sole discretion of Lender and shall be final and conclusive.
5.3 Governing Law. The Parties hereby irrevocably agree (and waive all
rights to the contrary) that this Agreement shall be governed by the internal
laws (and not the laws relating to conflicts of law) of the State of North
Carolina, except to the extent that the same may be superseded or preempted by
the federal law, provided however, that with respect to the provisions herein,
if any, that relate to the perfection, priority or enforcement of liens on
personal property or real property or the determination of the existence of
contamination affecting any real property, the agreement shall be governed by
the laws of the jurisdiction in which the personal property or real property is
located.
5.4 Modification; Waiver in Writing. Lender may waive any single default by
Borrower hereunder without waiving any other prior or subsequent default. Lender
may remedy any default by Borrower hereunder without waiving the default
remedied. Neither the failure by Lender to exercise, nor the delay by Lender in
exercising, any right, power or remedy upon any default by Borrower hereunder
shall be construed as a waiver of such default or as a waiver of the right to
exercise any such right, power or remedy at a later date. No single or partial
exercise by Lender of any right, power or remedy hereunder shall exhaust the
same or shall preclude any other or further exercise thereof, and every such
right, power or remedy hereunder may be exercised at any time and from time to
time. No modification or waiver of any provision hereof nor consent to any
departure by Borrower therefrom shall in any event be effective unless the same
shall be in writing and signed by Lender, and then such waiver or consent shall
be effective only in the specific instance and for the specific purpose given.
No notice to nor demand on Borrower in any case shall of itself entitle Borrower
23
<PAGE>
to any other or further notice or demand in similar or other circumstances
unless otherwise expressly provided herein. Acceptance by Lender of any payment
in an amount less than the amount then due on any of the Indebtedness shall be
deemed an acceptance on account only and shall not in any way affect the
existence of a default hereunder. In case Lender shall have proceeded to invoke
any right, remedy or recourse permitted hereunder or under the other Loan
Documents and shall thereafter elect to discontinue or abandon the same for any
reason, Lender shall have the unqualified right to do so and, in such an event,
Borrower and Lender shall be restored to their former positions with respect to
the Indebtedness, the Loan Documents, the Properties and otherwise, and the
rights, remedies, recourses and powers of Lender shall continue as if the same
had never been invoked.
5.5 Notices. All notices, demands, requests or other communications to be
sent by one party to the other hereunder or required by law shall be in writing
and shall be deemed to have been validly given or served by delivery of the same
in person to the intended addressee, or by depositing the same with Federal
Express or another reputable private courier service for next Business Day
delivery, or by depositing the same in the United States mail, postage prepaid,
registered or certified mail, return receipt requested, in any event addressed
to the intended addressee at its address set forth on the first page of this
Agreement or at such other address as may be designated by such party as herein
provided. All notices, demands and requests to be sent to Lender shall be
addressed to the attention of the Capital Markets Group. All notices, demands
and requests shall be effective upon such personal delivery, or one (1) Business
Day after being deposited with the private courier service, or two (2) Business
Days after being deposited in the United States mail as required above.
Rejection or other refusal to accept or the inability to deliver because of
changed address of which no notice was given as herein required shall be deemed
to be receipt of the notice, demand or request sent. By giving to the other
party hereto at least fifteen (15) days' prior written notice thereof in
accordance with the provisions hereof, the parties hereto shall have the right
from time to time to change their respective addresses and each shall have the
right to specify as its address any other address within the United States of
America.
5.6 Submission to Jurisdiction; Waiver of Jury Trial.
(a) BORROWER AND LENDER EACH, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
KNOWINGLY, INTENTIONALLY, IRREVOCABLY, AND VOLUNTARILY, (i) SUBMITS TO PERSONAL
JURISDICTION IN THE STATE OF NORTH CAROLINA OVER ANY SUIT, ACTION OR PROCEEDING
BY ANY PERSON ARISING FROM OR RELATING TO THE NOTE, THIS AGREEMENT OR ANY OTHER
OF THE LOAN DOCUMENTS, (ii) AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING MAY
BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN
MECKLENBURG COUNTY, NORTH CAROLINA, AND (iii) SUBMITS TO THE JURISDICTION OF
SUCH COURTS. BORROWER AND LENDER EACH FURTHER CONSENTS AND AGREES TO SERVICE OF
ANY SUMMONS, COMPLAINT OR OTHER LEGAL PROCESS IN ANY SUCH SUIT, ACTION OR
PROCEEDING BY REGISTERED OR CERTIFIED U.S. MAIL, POSTAGE PREPAID, TO BORROWER OR
LENDER, AS THE CASE MAY BE, AT THE ADDRESS FOR NOTICES DESCRIBED IN SECTION 5.5
HEREOF, AND CONSENTS AND AGREES THAT SUCH SERVICE SHALL CONSTITUTE IN EVERY
24
<PAGE>
RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT THE
VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER PERMITTED BY
LAW).
(b) BORROWER AND LENDER EACH, TO THE FULL EXTENT PERMITTED BY LAW, HEREBY
KNOWINGLY, INTENTIONALLY AND VOLUNTARILY, WAIVES, RELINQUISHES AND FOREVER
FORGOES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO THE INDEBTEDNESS OR ANY CONDUCT, ACT
OR OMISSION OF LENDER OR BORROWER, OR ANY OF THEIR DIRECTORS, OFFICERS,
PARTNERS, MEMBERS, EMPLOYEES, AGENTS OR ATTORNEYS, OR ANY OTHER PERSONS
AFFILIATED WITH LENDER OR BORROWER, IN EACH OR THE FOREGOING CASES, WHETHER
SOUNDING IN CONTRACT, TORT OR OTHERWISE.
5.7 Headings. The Article and/or Section headings and the Table of Contents
in this Agreement are included herein for convenience of reference only and
shall not constitute a part of this Agreement for any other purpose.
5.8 Successors and Assigns; Assignment. The terms, provisions, indemnities,
covenants and conditions hereof shall be binding upon and inure to the benefit
of Borrower and the successors and assigns of Borrower, including all successors
in interest of Borrower in and to all or any part of the Properties, and shall
be binding upon and inure to the benefit of Lender, its directors, officers,
shareholders, employees and agents and their respective successors and assigns.
All references in this Agreement to Borrower or Lender shall be deemed to
include all such parties' successors and assigns, and the term "Lender" as used
herein shall also mean and refer to any lawful holder or owner, including
pledgees and participants, of any of the Indebtedness. If Borrower consists of
more than one person or entity, each will be jointly and severally liable to
perform the obligations of Borrower.
5.9 Severability. Wherever possible, each provision of this Agreement shall
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement shall be prohibited by or invalid under
applicable law, such provision shall be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
5.10 Expenses; Indemnity. Borrower covenants and agrees to reimburse Lender
upon receipt of written notice from Lender for all reasonable out-of-pocket
costs and expenses (including reasonable attorneys' fees and disbursements)
incurred by Lender in connection with (i) the negotiation, preparation,
execution, delivery and administration of any consents, amendments, waivers or
other modifications to this Agreement and/or the other Loan Documents and any
other documents or matters requested by Borrower; (ii) enforcing or preserving
any rights, in response to third party claims or the prosecuting or defending of
any action or proceeding or other litigation, in each case against, under or
affecting Borrower, this Agreement, the other Loan Documents, the Properties, or
any other security given for the Loans; and (iii) enforcing any obligations of
or collecting any payments due from Borrower under this Agreement, the other
25
<PAGE>
Loan Documents or with respect to the Properties or in connection with any
refinancing or restructuring of the credit arrangement provided under this
Agreement in the nature of a "work-out" or of any insolvency or bankruptcy
proceedings; provided, however, that Borrower shall not be liable for the
payment of any such costs and expenses to the extent the same arise by reason of
the gross negligence, illegal acts, fraud or willful misconduct of Lender.
5.11 Exhibits Incorporated. The Exhibits and Schedules annexed hereto are
hereby incorporated herein as a part of this Agreement with the same effect as
if set forth in the body hereof.
5.12 No Joint Venture or Partnership. The relationship between Borrower and
Lender is that of a borrower and a lender only and neither of those parties is,
nor shall it hold itself out to be, the agent, employee, joint venturer or
partner of the other party.
5.13 Borrower's Waivers. Borrower hereby waives the right to assert a
counterclaim, other than a compulsory counterclaim, in any action or proceeding
brought against it by Lender or its agents.
5.14 Construction of Documents. The parties hereto acknowledge that they
were represented by counsel in connection with the negotiation and drafting of
this Agreement and the other Loan Documents and that this Agreement and such
Loan Documents shall not be subject to the principle of construing their meaning
against the party which drafted same.
5.15 Prior Agreements. This Agreement and the other Loan Documents contain
the entire agreements between the parties relating to the subject matter hereof
and thereof and all prior agreements relative hereto and thereto that are not
contained herein or therein are terminated. This Agreement and the other Loan
Documents may not be amended, revised, waived, discharged, released or
terminated orally but only by a written instrument or instruments executed by
the party against which enforcement of the amendment, revision, waiver,
discharge, release or termination is asserted. Any alleged amendment, revision,
waiver, discharge, release or termination which is not so documented shall not
be effective as to any party.
5.16 Exculpation. Notwithstanding anything to the contrary contained in
this Agreement, the liability of Borrower for the Indebtedness and for the
performance of the other agreements, covenants and obligations contained herein
and in the other Loan Documents shall be limited as set forth in Section 1.05 of
the Notes, which Section is incorporated herein by reference as fully as if set
forth herein at length; provided, however, that nothing herein shall be deemed
to be a waiver of any right that Lender may have under Sections 506(a), 506(b),
1111(b) or any other provisions of the U.S. Bankruptcy Code to file a claim for
the full amount of the Indebtedness in any bankruptcy proceeding in which
Borrower is a debtor or to require that all collateral shall continue to secure
all Indebtedness owing to Lender in accordance with this Agreement, the Notes,
the Mortgages and the other Loan Documents.
26
<PAGE>
5.17 Maximum Interest. The provisions of this Agreement and of all
agreements between Borrower and Lender, whether now existing or hereafter
arising and whether written or oral, are hereby expressly limited so that in no
contingency or event whatsoever, whether by reason of demand or acceleration of
the maturity of the Notes or otherwise, shall the amount paid, or agreed to be
paid, regardless of how denominated (herein "Interest"), to Lender for or in
respect of the use, forbearance or retention of the money loaned under the Notes
exceed the maximum amount permissible under applicable law. If, from any
circumstance whatsoever, performance or fulfillment of any provision hereof or
of any agreement between Borrower and Lender shall, at the time performance or
fulfillment of such provision shall be due, exceed the limit for Interest
prescribed by law or otherwise transcend the limit of validity prescribed by
applicable law, then ipso facto the obligation to be performed or fulfilled
shall be reduced to such limit, and if, from any circumstance whatsoever, Lender
shall ever receive anything of value deemed Interest by applicable law in excess
of the maximum lawful amount, an amount equal to any excessive Interest shall be
applied to the reduction of the principal balance owing under the applicable
Note in the inverse order of its maturity (whether or not then due) or at the
option of Lender be paid over to Borrower, and not to the payment of Interest.
To the fullest extent permitted by applicable law, all Interest (including any
amounts or payments deemed to be Interest) paid or agreed to be paid to Lender
shall, to the extent permitted by applicable law, be amortized, prorated,
allocated and spread throughout the full period until payment in full of the
principal balance of the applicable Note so that the Interest thereon for such
full period will not exceed the maximum amount permitted by applicable law. This
Section will control all agreements between Borrower and Lender.
5.18 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be effective upon delivery and thereafter
shall be deemed an original, and all of which shall be taken to be one and the
same instrument, for the same effect as if all parties hereto had signed the
same signature page. Any signature page of this Agreement may be detached from
any counterpart of this Agreement without impairing the legal effect of any
signatures thereon and may be attached to another counterpart of this Agreement
identical in form hereto but having attached to it one or more additional
signature pages.
27
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized representatives, all as of the day and
year first above written.
LENDER:
FIRST UNION NATIONAL BANK OF NORTH
CAROLINA
By: /s/
----------------------------
Name:
----------------------------
Title:
----------------------------
BORROWER:
SMC-SPE-2, a Delaware corporation,
By: /s/ Wade Smith
----------------------------
Name: Wade Smith
----------------------------
Title: Vice President
----------------------------
<PAGE>
EXHIBIT A
---------
INITIAL ALLOCATED LOAN AMOUNTS
Store #349 = $2,885,000.00
Store #344 = $2,285,000.00
<TABLE>
EXHIBIT 11
SERVICE MERCHANDISE COMPANY, INC. AND SUBSIDIARIES
Computation of Net Loss Per Common Share (Unaudited)
(In thousands, except per share data)
<CAPTION>
Three Periods Ended Nine Periods Ended
------------------------------- --------------------------------
September 29 October 1 September 29 October 1
1996 1995 1996 1995
------------- ------------- -------------- -------------
Primary
- -------
<S> <C> <C> <C> <C>
Net loss ($12,324) ($8,540) ($38,861) ($30,700)
============= ============= ============== =============
Shares:
Weighted average common shares outstanding 99,216 99,136 99,200 99,029
Weighted average shares of restricted
stock outstanding 524 528 522 659
Additional shares assuming exercise of stock
options 1,597 2,193 1,642 1,707
------------- ------------- -------------- -------------
Weighted average common shares and common
share equivalents outstanding - primary 101,337 101,857 101,364 101,395
============= ============= ============== =============
Primary net loss per common share ($0.12) ($0.08) ($0.38) ($0.30)
============= ============= ============== =============
Assuming Full Dilution
- ----------------------
Net loss ($12,324) ($8,540) ($38,861) ($30,700)
============= ============= ============== =============
Shares:
Weighted average common shares outstanding 99,216 99,136 99,200 99,029
Weighted average shares of restricted
stock outstanding 524 528 522 659
Additional shares assuming exercise of stock
options 1,597 2,236 1,666 1,737
------------- ------------- -------------- -------------
Weighted average common shares and common
share equivalents outstanding - fully diluted 101,337 101,900 101,388 101,425
============= ============= ============== =============
Fully diluted net loss per common share ($0.12) ($0.08) ($0.38) ($0.30)
============= ============= ============== =============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Service Merchandise Company, Inc. Form 10-Q for the nine periods ended
September 29, 1996 and is qualified in its entirety by reference to such
financial statements detailed in Part I of the Form 10-Q.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-29-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-02-1995
<PERIOD-END> SEP-29-1996 OCT-01-1995
<CASH> 21,390 18,901
<SECURITIES> 0 0
<RECEIVABLES> 42,478 39,478
<ALLOWANCES> 2,966 3,022
<INVENTORY> 1,328,761 1,328,436
<CURRENT-ASSETS> 1,464,139 1,461,036
<PP&E> 1,198,478 1,192,861
<DEPRECIATION> 602,537 572,151
<TOTAL-ASSETS> 2,082,464 2,104,640
<CURRENT-LIABILITIES> 1,113,721 1,173,779<F1>
<BONDS> 616,229 622,977
0 0
0 0
<COMMON> 99,748<F2> 99,670<F2>
<OTHER-SE> 298,754 255,634
<TOTAL-LIABILITY-AND-EQUITY> 2,082,464 2,104,640
<SALES> 2,313,940 2,332,035
<TOTAL-REVENUES> 2,313,940 2,332,035
<CGS> 1,770,213 1,772,284
<TOTAL-COSTS> 1,770,213 1,772,284
<OTHER-EXPENSES> 553,503<F3> 552,165<F3>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 52,903 57,914
<INCOME-PRETAX> (62,679) (50,328)
<INCOME-TAX> (23,818) (19,628)
<INCOME-CONTINUING> (38,861) (30,700)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (38,861) (30,700)
<EPS-PRIMARY> (0.38) (0.30)
<EPS-DILUTED> (0.38) (0.30)
<FN>
<F1> Certain prior period amounts have been reclassified for comparative purposes.
<F2> Amount represents the number of shares of $0.50 par value common stock issued and
outstanding.
<F3> Amount includes I) depreciation and amortization and II) selling, general and
administrative expenses.
</FN>
</TABLE>
